LIBRARY 

UNIVERSITY  OF 
CALIFORNIA 

SAN  DIEGO 


^4'^r 


MATERIALS  FOR  THE  STUDY 
OF  ECONOMICS 


READINGS  IN 
THE  ECONOMICS  OF  WAR 


THE  UNIVERSITY  OP  CHICAGO  PRESS 
CHICAGO,  ILLINOIS 


THE  BAKER  &  TAYLOR  COMPANY    ' 

NEW  YORK 

THE  CAMBRIDGE  UNIVERSITY  PRESS 

LONDON  AND  EDINBURGH 

THE  MARUZEN-KABUSHIKI-KAISHA 

TOKYO,  OSAKA,  KYOTO,  FDKUOKA,  8ENDAI 

THE  MISSION  BOOK  COMPANY 

SHANGHAI 


READINGS 

IN 

THE  ECONOMICS  OF  WAR 


EDITED  BY 

J.  MAURICE  CLARK 

WALTON  H.  HAMILTON 

HAROLD  G.  MOULTON 


THE  UNIVERSITY  OF  CHICAGO  PRESS 
CHICAGO,  ILLINOIS 


COPYRIGHT  1918  Bv 
THE  UNIVERSITY  OF  CHICAGO 


All  Rights  Reserved 


Published  September  1918 


Composed  and  Printed  By 

The  University  of  Chicago  Press 

Chicago,  Illinois.  U.S.A. 


TO 

M 
W 

& 
F 


FOREWORD 

When  this  war  comes  to  be  reviewed  in  proper  per- 
spective its  social  and  economic  aspects  will  be  found  at 
least  as  remarkable  as  the  military  events,  and  perhaps  more 
instructive.  And  among  them  the  influence  of  war  on 
industry  and  the  converse  influence  of  industry  on  war  will 
take  a  prominent  place.  We  are  indeed  witnessing  a  phe- 
nomenon so  extraordinary  and  unexpected  that  we  can  see 
only  its  surface  as  we  pass,  and  are  hardly  able  to  comprehend 
even  that.  There  has  not  been  time  to  look  beneath  and  try 
to  read  the  deeper  meaning  of  it  all.  But  some  lessons 
present  themselves  which  he  who  runs  may  read.  Never 
before  has  the  supreme  concerted  effort  demanded  by  war 
been  so  fully  brought  out  and  the  inscrutable  mystery  of 
human  conduct  been  so  clearly  posed  as  in  this  prodigious 
conflict  of  industrial  nations. 

SHADWELL 


PREFACE 

This  volume  aims  to  throw  light  upon  the  various  economic 
questions  which  arise  in  connection  with  the  war.  It  falls  roughly 
into  three  divisions,  which  are  concerned  with  the  economic  back- 
ground of  war  in  general,  the  economic  reorganization  required  in  view 
of  the  necessities  of  a  world-war,  and  the  economic  questions  involved 
in  the  reorganization  of  the  industrial  system  at  the  end  of  the  present 
conflict. 

The  first  of  these  three  divisions  grows  out  of  the  necessity  for  a 
proper  understanding  of  what  is  involved  'in  the  struggle.  The 
theory  of  "the  economic  interpretation  of  history"  has  lost  vogue  and 
no  longer  suffices  to  give  a  full  explanation .  Yet  however  numerous 
and  complicated  are  the  factors  that  merge  themselves  into  the 
psychological  matrix  out  of  which  war  springs,  few  indeed  would  deny 
that  commercial  rivalry,  concessions,  imperial  exploitation,  and  a 
conviction  on  the  part  of  certain  political  groups  that  war  is  a  sound 
business  venture,  are,  factors  of  the  first  magnitude  in  explaining 
the  present  struggle.  A  consideration  of  questions  such  as  these  is  of 
use,  not  only  in  answering  the  question  of  what  the  struggle  is  about, 
but  also  in  pointing  to  the  economic  factors  which  deserve  special 
consideration  in  the  peace  which  is  some  time  to  come. 

The  second  of  these  divisions — that  concerned  with  the  proper 
organization  of  the  industrial  system  for  war — is  of  primary  impor- 
tance. While  military  efficiency  depends  upon  generalship,  upon 
the  numbers  and  quality  of  our  troops  and  other  factors,  primarily 
military,  these  are  inefficient  unless  the  industrial  system  is  made 
subservient  to  the  military  purpose.  Trie  importance  of  this  cannot 
be  overstated.  Here  it  deserves  even  more  than  a  word  of 
explanation. 

In  their  readiness  to  meet  an  armed  enemy  nations  may  be  divided 
into  two  groups — those  whose  governments,  industrial  systems,  and 
habits  and  customs  have  been  arranged  into  a  unified  and  coherent 
whole  directed  largely  to  military  ends,  and  those  which  without 
thought  for  military  strength  have  allowed  these  things  to  develop  to 


xii  PREFACE 

meet  the  needs  of  a  people  at  peace.  Germany  belongs  to  the  first 
group,  the  United  States  to  the  second. 

In  Germany  the  whole  industrial  system — farms,  mines,  factories, 
banks,  railroads,  commercial  agencies,  what  not — had  been  arranged 
so  that  the  whole  could  very  quickly  be  converted  into  a  gigantic 
engine  of  war.  Railroads,  for  instance,  were  placed  with  a  view  to 
their  strategic  importance,  phonograph  factories  were  built  with  an 
eye  to  their  conversion  into  munition  plants,  and  science  was  whipped 
into  subservience  to  the  requirements  of  war.  Care  was  had  that  the 
country  should  be  able  to  produce  as  nearly  as  possible  everything 
necessary  to  the  successful  prosecution  of  war  and  that  the  volume  of 
national  production  should  be  large  enough  for  war-time  needs.  The 
concentration  of  all  wealth  upon  a  single  objective — the  avoidance  of 
great  loss  through  duplication  of  effort  and  the  waste  which  attaches 
to  individuals  or  governmental  departments  working  at  cross-purposes 
— was  achieved  only  by  the  elaboration  in  time  of  peace  of  a  unified 
and  far-reaching  scheme  of  control.  The  latter  not  only  attempted  to 
regulate  industry,  government,  and  individual  conduct  by  actual 
interference,  but  also,  through  a  careful  direction  of  the  edu- 
cational system,  the  church,  and  the  press  it  attempted  to  create 
a  single  public  opinion  bent  upon  the  accomplishment  of  military 
purposes. 

The  United  States,  on  the  contrary,  had  attempted  to  read  no 
such  end  into  its  political  system,  its  industrial  organization,  or  its 
social  life.  The  yield  of  farm,  factory,  and  mine  was  devoted  either 
to  securing  a  larger  productive  equipment  or  to  raising  standards  of 
living.  The  surplus  produced  over  and  above  the  demand  of  the 
population  for  necessities  was  allowed  to  find  its  way  into  individual 
incomes,  where  it  appeared  as  comforts  or  vanities.  Plants  were  not 
established  with  a  view  to  a  quick  conversion  to  military  uses,  nor 
were  they  grouped  with  a  view  to  their  complementary  character. 
The  sprawling  conglomerate  net  of  the  railroads  of  the  country  had  no 
military  design  woven  into  its  pattern.  There  was  nowhere,  either 
in  the  design  of  the  industrial  system  or  in  national  thought,  the  idea 
of  a  surplus  of  wealth  as  large  as  possible  to  be  devoted  to  military 
ends.  The  system  as  a  whole  was  little  controlled  by  the  government 
and  responded  to  the.  many  and  varied  desires  of  many  men.  The 
agencies  through  which  opinion  is  organized — school,  church,  press, 
etc. — were  left  uncontrolled,  and  there  was  at  the  beginning  of  the  war 
little  appreciation  of  its  nature  and  cost  and  less  of  the  sweeping 


PREFACE  xiii 

transformations  in  industry,  its  control,  and  its  organization  necessary 
to  make  national  wealth  effective  in  war.  A  nation  without  prepara- 
tion was  required  to  get  its  house  ^in  readiness  for  war. 

The  problem  with  which  the  nation  was  confronted  at  the  begin- 
ning of  the  war  was  an  economic  one.  It  can  be  very  simply  stated. 
It  was  to  use  our  limited  resources  in  national  wealth,  industrial 
equipment,  and  man  power  in  the  creation  and  equipment  of  an  army 
as  large  as  possible;  to  organize  the  whole  into  its  component  and 
complementary  parts;  and  to  hurl  the  mass  most  effectively  upon  the 
enemy.  But  this  simplicity  is  in  striking  contrast  with  the  changes 
in  the  economic  organization  necessary  to  secure  its  solution.  The 
organization  of  establishments  into  trades  and  these  into  an  industrial 
system  had  to  be  changed.  The  production  of  many  goods  had  to 
cease  and  the  production  of  many  others  to  be  greatly  diminished.  A 
scheme  of  control  had  to  be  set  up  which  made  radical  departures 
from  the  business  principles  upon  which  we  formerly  relied.  This 
has  been  responsible  for  such  novel  devices  as  the  fixing  of  competitive 
prices,  priority  in  the  distribution  of  supplies,  authority  in  regulation 
of  food  distribution,  and  even  a  compulsory  recognition  of  unionism. 
And  not  only  has  the  whole  scheme  of  control  been  changed,  but  even 
the  lives  and  habits  and  the  thought  of  the  people  have  had  to  be 
remade  to  fit  these  circumstances.  To  find  the  many  ramifications 
of  the  change  one  has  but  to  touch  any  single  aspect  of  industrial  life. 
A  study  of  this  reorganization  involves  a  study  of  all  economic  motives, 
activities,  and  organization. 

The  third  division  of  the  volume  is  concerned  with  the  changes 
which  have  come  in  the  wake  of  the  war  and  with  the  problems  of 
reorganization  and  group  welfare  which  will  hare  to  be  met  when  it 
is  over.  Were  the  question  only  one  of  a  return  to  the  economic  order 
existing  before  the  war,  the  mechanical  readjustments  necessary 
thereto  would  make  it  extremely  difficult.  But  it  is  no  mere  question 
of  a  return.  The  number  of  laborers,  the  amount  of  capital,  and  the 
state  of  natural  resources  have  been  too  much  affected;  the  scheme 
of  industrial  relations,  the  control  of  the  government  over  industry, 
and  the  domain  of  direction  and  guidance  have  been  too  greatly 
changed;  and  the  habits,  thoughts,  and  ideals  of  the  people  have  been 
too  much  modified  for  that.  There  is  no  definite  program  for  recon- 
struction, as  there  is  a  program  for  war;  but  the  complexity  and 
variety  of  the  problems  and  their  intimate  connection  with  welfare 
demand  that  they  be  given  careful  consideration. 


xiv  PREFACE 

One  thing  alone  is  enough  to  make  the  reorganization  after  the 
war  more  difficult  than  organization  for  war.  Reorganization  calls 
for  a  permanent  structure  where  war  called,  so  to  speak,  only  for  a 
temporary  scaffolding.  In  place  of  an  organization  which  men  fired 
with  patriotism  will  find  it  possible  to  use,  we  must  have  one  which 
men  under  an  ordinary  mixture  of  motives  and  incentives  will  not 
find  it  too  easy  to  abuse.  It  is  nothing  less  than  a  permanent 
overhauling  of  our  economic  institutions  which  war  has  thrust 
upon  us. 

Hence  this  book  is  the  expression,  not  merely  of  the  economic  side 
of  the  war,  taken  as  a  detached  event,  but  rather  of  the  part  the  war 
plays  in  the  evolution  of  our  economic  institutions.  It  is  the  out- 
growth, not  merely  of  interest  in  the  war,  but  of  an  enterprise  of  longer 
standing — namely,  the  attempt  to  vitalize  economics  for  college 
students  (and  others  as  well)  by  making  it  relevant  to  the  absorbing 
tasks  of  the  present  generation.  In  these  tasks  the  war  has  come  to 
take  a  central  place. 

Some  critics  may  feel  that  the  tone  of  the  book  is  unduly  favorable 
to  the  scheme  of  control  which  the  war  has  brought  into  being.  It 
is  far  too  soon,  in  fact,  to  attempt  a  final  estimate  of  success  or 
failure  in  our  actual  performance,  and  hence  the  effort  here  has 
been  rather  to  show  the  principles  that  must  underly  such  control. 
Emphasis  is  laid  on  the  need  for  change  in  our  system,  the  opportu- 
nities for  improvement,  and  the  dangers  attending  such  experiments, 
but  no  attempt  is  made  to  pass  judgment  on  the  inevitable  mistakes 
or  to  weigh  the  effectiveness  or  ineffectiveness  with  which  the  needs 
have  been  met  and  the  opportunities  utilized.  Many  economists 
will  feel  that  certain,  topics  that  have  been  omitted  from  the  volume 
should  have  found  a  place,  and  others  will  wish  that  more  detailed 
analysis  and  criticism  had  been  given  in  numerous  connections. 
With  reference  to  the  former  the  editors  must  plead  limitations  of 
space.  The  latter  is  to  be  explained  only  in  terms  of  the  point  of 
view.  The  book  is  not  primarily  designed  for  the  specialist  in 
isolated  fields  of  inquiry;  its  main  purpose  is  to  reveal  to  under- 
graduate students  and  to  the  general  reader  the  larger  aspects  of  the 
problem  of  economic  organization  as  it  is  conditioned  by  war. 

It  is  hoped  that  this  study  of  war  conditions  and  problems  may 
be  of  some  service,  however  small,  in  connection  with  the  waging  of 
the  war  itself.  Its  primary  function  is  a  clear  presentation  of  the 
relationship  of  economic  organization  to  efficiency  in  war.  If  the 


PREFACE  XV 

volume  makes  clearer  this  relationship  and  reveals  the  many  elements 
of  an  economic  program  necessary  to  military  success,  and  thereby 
develops  a  more  enlightened  public  and  governmental  attitude,  the 
work  involved  in  its  preparation  will  not  have  been  in  vain.  It  is 
hoped  that  the  book  will  meet  three  uses:  First,  it  should  be  of  value 
in  connection  with  courses  in  the  economics  of  war,  whether  such 
courses  be  designed  as  a  part  of  the  training  of  the  Student  Army 
Training  Corps  or  to  give  an  appreciation  to  other  students  of  the 
larger  economic  issues  related  to  the  war;  second,  it  should  do  much 
to  make  the  introductory  course  in  economics  of  real  significance  in 
understanding  the  changing  world  in  which  we  live;  third,  it  should 
prove  of  interest  to  the  general  reader  who  is  interested  in  the  eco- 
nomic background  of  war,  the  economic  basis  of  military  efficiency, 
and  the  economic  problems  that  will  follow  in  the  wake  of  the  war. 

J.  M.  C. 
H.  G.  M. 

University  of  Chicago 
W.  H.  H. 

Amherst  College 
SEPTEMBER  2,  1918 


TABLE  OF  CONTENTS 
I.    ECONOMIC  BACKGROUND  OF  WAR 

PAGE 

INTRODUCTION i 

I.  THE  NATION  AS  AN  ECONOMIC  UNIT 

1.  The  Nation  Stands  First.     Friedrich  List    ....         4 

2.  National  Economic  Unity.     Gustav  Schmoller  ...         6 

3.  National   Economic   Rivalry   an   Illusion.    Norman 
Angell 9 

II.  THE  PRESSURE  OF  POPULATION 

1.  Birth-rates  and  International  Rivalry.    Edward  Als- 
•worth  Ross 14 

2.  Population  Limits  and   Social  Decay.     William  S. 
Rossiter 17 

3.  A  Stationary  Population  and  Prosperity.     Warren  S. 
Thompson . 20 

III.  ECONOMIC  IMPERIALISM 

1.  A  Summary  View  of  Machtpolitik.    F.  von  Bernhardi        22 

2.  Industrial  Penetration.    Henri  Hauser 26 

3.  The   Theory  of   the  White   Man's  Burden.,  Abbott 
Payson  Usher /  .      .       34 

4.  A  British  View  of  Mesopotamia.     Canon  Parfit ...       39 

5.  Immediate  Antecedents  in  the  Near  East.    George 
Young 41 

\ 

IV.  COMMERCIAL  RIVALRY  AND  SPECIAL  INTERESTS 

1.  Diminishing  Causes  of  Hostility.     Alvin  Johnson  .      .       43 

2.  Concessionary  Investors:  A  Powerful  Special  Interest. 
Alvin  Johnson 47 


xviii  TABLE  OF  CONTENTS 

PAGE 

3.  Tariff  Walls  and  International  Friction.     The  Earl  of 
Cromer 52 

4.  The   "Open   Door"   Does   Not   Settle   Everything. 
Walter  Lippmann 54 

II.    WAR  AS  A  BUSINESS  VENTURE 
INTRODUCTION 57 

V.  THE  NEGATIVE  SIDE 

1.  Conquest  Does  Not  Pay.    Norman  Angett       ...  58 

2.  Permanent  Subjugation  Impossible.    Norman  Angett.  61 

3.  A  German  Socialist  View 63 

4.  Trade  Will   Flow   Back   to   Its   Natural   Channels. 
L.W.S 64 

5.  Limits  Imposed  in  the  Hague  Conventions.      ...  66 

VI.  THE  PROFIT  SIDE 

1.  Germany  Ready  to  Administer   Captured  Wealth. 

K.  A.  Fischer 67 

2.  Systematic  Exploitation :  The  "Rathenau  Plan"        .       69 

3.  German  Gains  in  the  East 74 

VII.  HUMAN  ATTITUDES,  RATIONAL  OR  OTHERWISE 

1.  Why  War  Persists  Despite  Its  Irrational  Character. 
Norman  Angett 82 

2.  Patriotism    and    Selfishness    Cannot    Be    Isolated. 
Waller  Lippmann 85 

3.  Plans  of  the  Financial  Interests.    H.  N.  Brailsford     .       87 

t 

III.    THE  NATURE  OF  MODERN  WAR 
INTRODUCTION : 93 

VIII.  WAR  UNDER  MODERN  INDUSTRIAL -CONDITIONS 

1.  War  and  the  State  of  the  Industrial  Arts.     Adam 
Smith 94 

2.  The  Dependence  of  War  upon  Economic  Organization. 

C.  E.  Ayres 99 


TABLE  OF  CONTENTS  xix 

PAGE 

3.  It  Takes  Time  to  Develop  Specialized  Machinery       .     103 

4.  The    Insatiable    Demand    for    Murlitions.    Edwin 
Montagu 104 

5.  A  Morning's  Work  in  the  Ministry  of  Munitions. 
Edwin  Montagu 106 

IX.  THE  RELATION  or  SCIENCE  AND  INDUSTRY  TO  WAR 

1.  The  Scientific  Basis  of  War  Technique.    George  K. 
Burgess 107 

2.  The  Utilization  of  Industry.    Georges  Blanchon     .      .  112 

3.  The  Military  Use  of  Railways.    Georges  Blanchon      .  116 

4.  Industrial  Energy  as  a  Military  Weapon.    James  R. 
Finlay 118 

X.  THE  LARGER  ECONOMIC  STRATEGY.    An  editorial       .     .     120 

\ 

IV.    RESOURCES  OF  THE  BELLIGERENTS 
j 
INTRODUCTION     -. 126 

XI.  THE  VALUE  OF  GEOGRAPHIC  POSITION 

1.  Assets  and  Liabilities  of  the  Germanic  Position.    An 
editorial        127 

2.  Assets   and  Liabilities  of   the  Allied  Position.     An 
editorial 131 

XII.  THE  INDUSTRIAL  RESOURCES  OF  THE  BELLIGERENTS 

1.  Map  Showing  Locations  of  European  Ore  and  Coal 
Deposits 135 

2.  Charts  Showing  Resources  and  Production  in  Coal, 
Iron,  Steel,  Copper,  Petroleum,  Timber,  and  Cotton  136-141 

3.  Chart  Showing  Railway  Mileage 141 

XIII.  SOME  ECONOMIC  ASSETS  OF  GERMANY 

1.  Germany's  Resources  in  Coal  and  Iron.    Karl  Helf- 
ferich      .    ' 142 

2.  Utilization  of  Power  in  Germany.     Karl  Heifer ich     .     145 

3.  Correlated  Industrial  Processes 148 

4.  Germany's  Strategic  Railways 

A.  In  General.     William  L.  Park 149 

B.  In  Particular.     Walter  Littlefield       .....     150 

5.  German  Discipline.     Samuel  P.  Orth 152 


xx  TABLE  OF  CONTENTS 

PAGE 

XIV.  SOME  ECONOMIC  LIABILITIES  OF  THE  ALLIES 

1 .  The  Theory  of  Laissez-Faire.     Piercy  Ravenstone  .      .  154 

2.  Social  Customs  and  Efficiency  in  War.     An  editorial  .  155 

3.  The  Penalty  of  Taking  the  Lead  in  Industry.     Thor- 
stein  Veblen 157 

XV.  THE  ECONOMIC  ISOLATION  OF  GERMANY.    Gustane  Cassel    160 

V.    THE  PROBLEM  OF  INDUSTRIAL  MOBILIZATION 

INTRODUCTION 164 

XVI.  THE  NATURE  OF  THE  PROBLEM 

1.  Conversion 'of  Industries  to  War  Production.     Howard 
Earle  Coffin 166 

2.  The  Fundamental  Requirements  of  War.     Harold  G. 
Moidton • .     .     .      .  168 

3.  The  Size  of  the  Job.     Frank  A.  Vanderlip  .      .      .      .  172 

4.  The  Diversion  of  Energy  Required.    An  editorial       .  175 

XVII.  METHODS  OF  INDUSTRIAL  MOBILIZATION 

1.  Voluntary    Enlistment    of    Factories.      Harold    G. 
Moulton 177 

2.  Voluntary  Industrial  Mobilization  of  Labor.     L.  C. 
Marshall 180 

3.  Industrial  Consequences  of  Voluntary  Army  Recruit- 
ing.    Andre  Chevrillon 182 

4.  Selective  Military  Conscription 183 

5.  Work  or  Fight.    General  Crowder 184 

6.  Priority  Method.     Alvin  Johnson 185 

7.  Industrial  Conscription  for  War  Service.    Harold  G. 
Moulton 186 

XVIII.  LESSONS  FROM  EUROPEAN  EXPERIENCE 

1.  France's  Industrial  Situation  in  the  Autumn  of  1914. 
Raoul  Blanchard 188 

2.  Industrial  Mobilization  in  England.     R.  H.  Brand     .     191 

3.  Germany's  Mobilization  of  Natural  Resources. 

A.  In  1914.     Walter  Rathenau 197 

B.  Compulsory  Civilian  Service,  1916 198 

C.  Germany's    "Organization    for    Victory,"     1916. 
General  Groner 199 


TABLE  OF  CONTENTS  xxi 

PAGE 

4.  The  Economic  Breakdown  of  Russia 

A.  How  Russia  Neglected  Economic  Organization. 
Samuel  N.  Harper 202 

B.  A    Warning    of    Impending    Economic    Collapse. 
Prince  Lvov 204 

C.  The  Situation  in  the  Third  Year  of  the  War.     A.  I. 
Konovalov 206 

VI.     OBSTACLES  TO  RAPID  MOBILIZATION  IN  LIBERAL 
COUNTRIES 

INTRODUCTION 208 

XIX.  THE  ORGANIZATION  OF  PUBLIC  OPINION  IN  ENGLAND. 

Andre  Chewillon 209 

XX.  THE  POSITION  OF  THE  PRESS.    An  editorial    .     .     .     .     216 

XXI.  WORKING  AT  CROSS  PURPOSES 

1.  Why  America  Lags.    Alvin  Johnson      .     .     .     .  .  218 

2.  A  Nation  of  Economic  Amateurs.     L.  C.  Marshall  .  221 

3.  The  Need  for  Co-ordination.     William  Hard   .      .  .  224 

XXII.  CONCRETE  ILLUSTRATIONS  OF  THE  PROBLEMS  INVOLVED 

\ 

1.  Developing  the  Machinery  for  the  Administration  of 
Labor.    L.  C.  Marshall 230 

2.  The  History  of  the  War  Industries  Board.     Curtice  N. 
Hitchcock 245 

VII.    WAR-TIME  REGULATION  OF  TRADE  AND 
INDUSTRY 

INTRODUCTION 254 

XXIII.  TRADE  DISLOCATIONS 

1.  The  Nature  of  Trade  Disorganization.     An  editorial     255 

2.  The  War's  Effects  in  Neutral  Scandinavia.    Fin  Lund     256 

3 .  German  Foreign  Trade  in  War  Time.     Chauncey  Depew 
Snow  and  J.  J.  Krai 258 


xxii  TABLE  OF  CONTENTS 

PAGE 

XXIV.  THE  INTERNATIONAL  EXCHANGES 

1.  Great  Britain's  Foreign  Exchange  Problem.    R.  H. 
Brand 259 

2.  Trade  and  "Financial"  Balance  of  the  United  States. 
Abraham  Berglund 262 

3.  Allied  Control  of  Exchanges  and  German  Trade    .      .     267 

4.  Problems  in  the  Control  of  Foreign  Exchange  .      .      .     268 

XXV.  SHIFTING  THE  WORLD'S  GOLD  SUPPLY 

1.  Gold  Holdings  of  the  Nations,  1914-1917.    John  E. 
Rovensky 270 

2.  Effects  of  the  Shifting  of  the  World's  Gold  Supply. 
John  E.  Rovensky 271 

XXVI.  BRITISH  CONTROL  OF  TRADE  AND  INDUSTRY 

1.  The  Regulation  of  Trade  in  Great  Britain.    Robert 
Donald 272 

> 

2.  The  Development  of  the  British  Ministry  of  Muni- 
tions.    Jules  Destree 276 

3.  England's  Machinery  for  Industrial  Control     .      .      .     281 

XXVII.  UNITED  STATES  REGULATIONS 

1.  How    the    Neutrals   Help    Germany.     James   Louis 
Moore 285 

2.  General  Policies  of  the  War  Trade  Board   .      .      .      .286 

3.  Exports  in  Time  of  War.     Woodrow  Wilson^     .     .     .     288 

4.  Purpose  of  Restricting  Imports 290 

5.  Problems    of    the    Ordnance    Department.    Samuel 
McRoberts 292 

6.  The  Priority  System  at  Work.    An  editorial     .     .     .     296 

7.  The  Regional  Organization  of  Industry.    Harold  G. 
Moulton 300 


I 

TABLE  OF  CONTENTS  xxiii 

VIII.  FOOD  AND  FUEL 

PAGE 

INTRODUCTION 304 

XXVIII.  WHERE  HUNGER  PINCHES 

1.  The  Scarcity  of  Fish  in  Berlin 305 

2.  Control  of  Eggs  in  Berlin 306 

3.  Food  Excursions 306 

4.  "Mass  Feeding"  in  Germany 307 

5.  The  Food-Card  System 307 

6.  Food  in  Bohemia 309 

7.  The  "Kit-Bag"  Trade .     .      .  310 

8.  Thus  Fares  the  Turk 311 

XXIX.  THE  REQUISITES  or  A  NATIONAL  FOOD  POLICY.    Walton 

H.  Hamilton 311 

XXX.  THE  WORLD'S  COAL  SITUATION.    William  Notz    .     .     .323 

XXXI.  COAL  PROBLEMS  OF  THE  UNITED  STATES 

1.  Our  Heatless  "Holidays".      .                 330 

2.  The  Zoning  System  of  the  United  States.     William 
Notz  . 334 

3.  The  Outlook  for  1918-1919 336 

XXXII.  COMPETITION   VERSUS   EFFICIENCY   IN   MINING    COAL. 

Chester  G.  Gilbert  and  Joseph  E.  Pogue 337 

XXXIII.  COAL  AND  ELECTRICITY  IN  DOUBLE  HARNESS       .     .     .  340 

IX.  TRANSPORTATION 

INTRODUCTION • 343 

XXXIV.  GREAT  BRITAIN'S  EXAMPLE.    F.A.McKenzie     .     .     .  345 
XXXV.  THE  TASK  OF  AMERICAN  RAILROADS.    An  editorial   .     .  347 

XXXVI.  THE  ROADS  IN  PRIVATE  HANDS 

1.  Under  the  Railroads' War  Board.    Max  Thelen    .     .  348 

2.  Accomplishments  under  Private  Ownership      .     .     .  348 

3.  Reasons  for  a  Change 349 


xxiv  TABLE  OF  CONTENTS 

I 

PAGE 

XXXVII.  THE  FEDERAL  ORGANIZATION  ESTABLISHED 

1.  Phases    in    the   Development    of    Federal    Railroad 
Control '...."...     350 

2.  Outline  of  the  Railroad  Control  Bill 351 

XXXVIII.  WHAT  FEDERAL  CONTROL  HAS  ACCOMPLISHED 

1.  General  Policy.     William  G.  McAdoo 354 

2.  Some  Results.    An  editorial .355 

3.  Prevention  of  Traffic  Concentration 359 

XXXIX.  THE  EXPRESS  COMPANIES 360 

XL.  THE  OUTCOME 

1.  Unified  Regulation  Required.     T.  W.  Van  Metre  .     .     363 

2.  Some  Inferences.    An  editorial 365 

XLI.  THE  SHIPPING  PROBLEM 

1.  The  War  and  World- Shipping 368 

2.  Great    Britain's    Shipping    Problem,     1917.    David 
Lloyd  George 368 

3.  The  Shipping  Problem  of  the   United  States.    An 
editorial , 370 

XLIL  QUESTIONS  OF  METHOD 

1.  Shipbuilding  Strategy.    An  editorial 371 

2.  A  Ship  Built  in  Twenty-seven  Days 375 

XLIII.  THE  RACE  BETWEEN  BUILDING  AND  SINKING 

1.  A  Year's  Decline  in  Shipping  Losses 376 

2.  Our  Great  Shipbuilding  Victory 377 

3.  Results  of  Shipping  Program,  July,  1918     ....     377 

XLIV.  How  THE  ALLIES  CONTROL  INTERNATIONAL  SHIPPING     .     378 


TABLE  OF  CONTENTS  xxv 
X.    WAR  FINANCE 

PAGE 

INTRODUCTION 380 

XLV.  THE  FUNCTION  OF  WAR  FINANCE 

1.  Population,  Wealth,  Income,  and  Debts  of  Belligerent 
Countries.     R.  R.  McEhare  and  Louis  Gottlieb.      .      .  382 

2.  Can  Capital  Be  Conscripted  ? 382 

3.  The  Place  of  Money  in  War  Finance.    R.  H.  Brand  .  384 

4.  How  the  Government  Uses  the  Money.    An  editorial  385 

5.  Relation  of  Bank  Credit  to  War  Finance    ....  386 

XL VI.  CAN"  THE  COST  OF  THE  WAR  BE  POSTPONED  ? 

1.  The  Burden  Should  Be  Shifted  to  the  Future.    George 

M.  Reynolds 387 

2.  The  Burden  Cannot  Be  Postponed.    E.  Dana  Durand .  388 

XLVII.  BONDS  OR  TAXES  IN  WHAT  PROPORTION  ? 

1.  Conscription  of  Income.    0.  M.  W.  Sprague    .     .     .  392 

2.  Tax  Policy  Is  Most  Equitable.    E.  Dana  Durand .      .  393 

3.  A  Criticism  of  Heavy  Taxation.     Charles  J.  Bullock  .  396 

4.  Destruction  of  Capital:  A  Business  View   ....  399 

5.  The  Crux  of  the  Problem  Is  Large  Production       .      .  400 

6.  War  Finance  and  War  Production.    An  editorial  .      .  401 

\ 
XL VIII.  WAR  FINANCE  AND  CURRENCY  INFLATION 

1.  The  Meaning  of  Inflation       .      .     .     .     .     .      .     .  403 

2.  Inflation  through  Borrowing  on  Bonds.    F.  A.  Delano  404 

3.  The  Evils  of  Inflation.    A.  C.  Miller 407 

XLIX.  TAXATION  POLICY 

1.  The  First  Year  of  War  Taxation.    Edwin  R.  A.  Selig- 
man 409 

2.  The  Treasury  Program  for  1918-19 418 

3.  Criticism  of  Program  for  1918-19.    Henry  C.  Adams  .  422 

4.  Excess    Profits    and    Industrial    Mobilization.     An 
editorial 424 

5.  Argument  for  Taxes  on  Luxuries 425 


xxvi  TABLE  OF  CONTENTS 

PAGk 

L.  THE  THRIFT  PROBLEM,  OR  THE  CONSUMER'S  DILEMMA 

1 .  The  Appeal  to  Spend 

A.  Sample  Advertisement.    Sinclair  Kennedy       .     .     427 

B.  Are   Your   Economics   on   Straight?    E.    LeRoy 
Pelletier 428 

C.  Individual     versus     National     Welfare.     Harry 
Qordon  Self  ridge  430 

D.  Keep  Business  Normal 431 

2.  The  Appeal  to  Save 

.,  V 

A.  Luxuries  and  Extravagance  Is  Treachery      .     .     .432 

B.  Consumptive  Slackers.     Thomas  Nixon  Carver       .     432 

C.  The  Function  of  War  Savings.    Dwight  W.  Morrow    433 

i 

LI.  THE  WAR  FINANCE  CORPORATION 

1.  Reasons  for  Organization  of  War  Finance  Corporation    435 

2.  War  Finance  Corporation  Unimportant      .     .     .     .437 

XI.    PRICES  AND  PRICE  CONTROL 

INTRODUCTION 439 

LII.  THE  REVOLUTION  IN  PRICES 

1.  The  Rising  Price  Level.    An  editorial 441 

2.  Fundamental  Causes  and  Effects  of  tKe  Rise    .      .     .  442 

3.  Aggravating  Factors.    Charles  R.  Van  Hise     .     .     .  445 

4.  Increasing  Pay  to  Balance  Increased  Prices      .     .     .  446 

LIII.  THE  NEED  FOR  CONTROL 

1.  The  Necessity  for  Price  Control.    Harold  G.  Moulton  448 

2.  Where  Prices  Are  Uncontrolled 450 

3.  British  Experience.    Sidney  Webb 451 

4.  Do  Big  Prices  Get  the  Most  Work  Done  ?    An  editorial  453 


TABLE  OF  CONTENTS  xxvil 

PAGE 

LIV.  THE  CASE  AGAINST  CONTROL 

1.  Price  Control  and  Industrial  Mobilization.    Harold  G. 
Moulton 455 

2.  Price-Fixing    by.    Government.       David  MacGregor 
Means     .      . .      .     457 

LV.  GENERAL  ESTIMATES  OF  AMERICAN  POLICY 

1.  Government    Price-Fixing    in    the    United    States. 

B.  M.  Anderson,  Jr 461 

2.  A  Year  of  Food  Administration.     Thomas  H.  Dickin- 
son     462 

LVI.  SIGNIFICANT  PHASES  OF  CONTROL 

1.  Control  of  Meat  Packing 465 

2.  Live  Stock  and  Feed  Prices    .  467 

3.  Some  Cases  of  Price  Control.     Charles  R.  Van  Hise   .  469 

4.  Forms  of  Contracts     .v 474 


XII.    LABOR  AND  THE  WAR 

INTRODUCTION 480 

LVII.  ATTITUDE  OF  LABOR  TOWARD  THE  WAR 

1.  The  Real  Pacifism  before  the  War.    Gustave  Herve      .  481 

2.  Attitude  on  the  Eve  of  Hostilities.     G.  D.  H.  Cole     .  484 

A.  Manifesto  to  the  British  People 484 

B.  The  Voice  of  the  Crowd 485 

C.  Labor  Officially  Speaks .     .  486 

D.  The  War  Must  Be  Fought 487 

E.  Manifesto  to  the  Trade  Unionists  of  the  Country  .  488 

F.  The  Acceptance  of  War 489 

3.  The  Attitude  of  American  Labor 

A.  The  War  a  Laborer's  War.     William  B.  Wilson    .  491 

B.  A  Declaration  of  Principles    .      .      .      .      .      .      .  494 


xxviii  TABLE  OF  CONTENTS 

• 

PAGE 

LVIII.  PROBLEMS  IN  THE  MOBILIZATION  OF  AMERICAN  LABOR 

1.  The  Challenge  to  American  Labor 

A.  Great  Britain.    Hon.  James  H.  Thomas      .     .     .  497 

B.  France 497 

C.  Italy.    Dr.  Francesco  Saverio  Nitti 498 

2.  Conserve  Our  Industrial  Army 498 

3.  The  Organization  of  Man  Power.     Mark  Sullivan      .  500 

4.  Immigration  and  Man  Power 505 

5.  What  Organization  of  the  Labor  Market  Can  Do. 
William  M.  Leiserson 506 

6.  United  States  Employment  Service.     Woodrow  Wilson  508 

7.  The  Need  of  Housing 

A.  A  Shipbuilder  Speaks.     Thomas  C.  Desmond    .     .     510 

B.  Conditions  in  New  Orleans.    Roland  Otis   .     .     .     510 

LIX.  WAR-TIME  LABOR  CONDITIONS  AND  POLICIES 

1.  Industrial  Unrest  in  Great  Britain.     Rt.  Hon.  G.  N. 
Barnes,  M.  P 512 

2.  The  Effects  of  the  War  upon  British  Labor.    Sidney 
Webb 514 

3.  Labor   Working    Conditions    and    Efficiency.    John 

B.  Andrews 521 

4.  Extent  of  the  Employment  of  Women  and  Children 

in  Europe.    Anna  Rochester 524 

5.  Mediation  in  War  Time.     Felix  Frankfurter    .     .     .     530 
I          6.  A  War-Time  Labor  Policy 535 

XIII.    THE  COSTS  OF  THE  WAR 

INTRODUCTION 539 

LX.  QUANTITATIVE  MEASUREMENT  OF  WAR  COSTS 

1.  What  Do  We  Mean  by  War  Costs?    Edwin  R.  A. 
*Seligman 541 

2.  Pecuniary  Costs  of  the  European  War.     Ernest  L.       . 
Bogart 542 

3.  Costs  in  Men    .     .    '. 544 


TABLE  OF  CONTENTS  xxix 

PAGE 

LXI.  WAR  DEBTS  AND  WAR  COSTS 

1.  Germany  on  the  Verge  of  Bankruptcy.     William  C. 
Dreher 545 

2.  Germany's  War  Debts  Not  What  They  Seem.    An 
editorial 547 

LXII.  THE  SOCIAL  COSTS  OF  THE  WAR 

1.  Fallacies  about  the  Cost  of  War.    F.  W.  Hirst     .     .     548 

2.  Some  Economic  Considerations.    J.A.Hobson     .     .     552 

3.  War  and  Population.    James  A.  Field 555 

4.  Ultimate  Considerations.     An  editorial        .      .      .      .556 


XIV.    WAR'S  LESSONS  IN  THE  PRINCIPLES  OF  NATIONAL 
EFFICIENCY 

INTRODUCTION .     „ 560 

LXIII.  Industrial  Gains  from  War 560 

LXIV.  Some  Economic  Gains  from  the  War.    /.  A.  Hobson      .     562 

LXV.  The  Theory  of  National  Efficiency  in  War  and  Peace. 

/.  Maurice  Clark 566 

« 

XV.    ECONOMIC  FACTORS  IN  AN  ENDURING  PEACE 

INTRODUCTION r 588 

LXVI.  THE  RAW-MATERIALS  QUESTION 

1.  Germany's  Need  of  Raw  Materials.    Prince  du  Loewen- 
stein  Wertheim  Fretiderburg 589 

2.  The  Paris  Economic  Conference 590 

3.  The  Organization  of  Raw  Materials.     "Atticus."    .      .     593 

4.  An  Economic  Association  of  Nations.    Lord  Roberts   .     595 


• 

xxx  TABLE  OF  CONTENTS 

PAG 

5.  A  German  View  of  the  Raw-Materials  Boycott.    Herr 
Dernburg 597 

6.  International  Control  of  Raw  Materials.    An  editorial    600 

LXVII.  STRUGGLE  FOR  FOREIGN  MARKETS 

1.  Germany's  Foreign  Trade  Preparations.    P.  Harvey 
Middleton 601 

2.  Great  Britain's  Imperialistic  Plans 605 

3.  Needed:  An  Allied  Economic  Agreement    ....     606 

LXVIII.  TERRITORIAL  PROBLEMS 

1.  Germany's  Position  in  the  East 608 

2.  Germany 's  Colonial  Aims .     .     .      .     :     .     .     .     .  612 

3.  Summary  of  British  War  Aims.    David  Lloyd  George  .  613 

4.  Radical  (?)  Views  on  Territorial  Questions 

A.  Inter-allied  Labor  and  Socialist  Conference      .     .     614 

B.  French  Socialist  Views  on  Colonial  Policy  .     .     .     616 


XVI.    AFTER-THE-WAR  PROBLEMS 
INTRODUCTION 617 

LXIX.  THE  NATURE  OF  THE  PROBLEM 

1.  Reasons  for  Reconstruction  Proposals  in  Great  Britain. 
Ordway  Tead 619 

2.  The  Factors  in  the  Problem.    An  editorial       .     .     .620 

3.  England's  Ministry  of  Reconstruction 628 

LXX.  THE  PROBLEM  OF  DEMOBILIZATION 

1.  The  Task  of  Demobilization 634 

2.  Will  There  Be  a  Sex  War  in  Industry  ?    Mary  Stocks     639 


TABLE  OF  CONTENTS  xxxi 

FACE 

LXXI.  SOME  PROGRAMS  OF  SOCIAL  REFORM 

1.  The  War  Aims  of  American  Unionists 643 

2.  British  Labor  and  the  New  Social  Order 646 

3.  Program  of  the  World's  Peace.     Woodrow  Wilson      .     666 


ECONOMIC  BACKGROUND  OF  WAR 

Introduction 

From  earliest  ages  animals  have  fought  for  food,  savages  have 
killed  rival  claimants  to  their  hunting-grounds,  and  barbarians  have 
waged  war  for  plunder,  making  slaves  of  the  conquered  and  taking 
their  lands  and  other  possessions.  Rome  supported  her  magnificence 
by  the  tribute  of  a  subjugated  world  and  perished  largely  from  eco- 
nomic sterility  and  demoralization. 

Modern  wars  are  still  matters  of  economic  rivalry,  though  in  more 
and  more  refined  forms.  Indeed,  some  think  that  these  dilute 
economic  antagonisms  of  today  are  not  in  themselves  adequate  to 
motive  nations  to  fight  (selection  IV,  i),  but  rather  pretexts  for 
unleashing  the  tribal  fighting  impulses  left  over  from  earlier  ages 
when  tribal  wars  for  the  very  means  of  life  were  a  grim  biological 
necessity.  Be  that  as  it  may,  war  is  not  merely  a  product  of  economic 
rivalry  but  of  that  part  of  economic  rivalry  which  is  felt,  rightly  or 
wrongly,  to  be  rivalry  between  sovereign  social  groups  rather  than 
between  individuals.  It  must  also  be  felt,  rightly  or  wrongly,  by 
the  whole  people  to  be  worth  fighting  over — or  at  least  by  the  influ- 
ential or  ruling  classes. 

War  rests  then,  in  the  first  place,  on  the  idea  of  the  nation  as  an 
economic  unit,  with  economic  rivalries  involving  the  common  national 
interest.  Whether  this  idea  be  true,  as  List  and  Schmoller  (selections 
I,  i  and  2)  maintain,  or  false,  as  Norman  Angell  (selection  V,  3)  argues 
(cf.  also  Alvin  Johnson  on  class  interests),  a  belief  in  it  makes 
for  militarism,  and  disbelief  for  pacifism.  The  nation  does  undoubt- 
edly perform  some  very  important  functions  of  an  economic  sort 
which  make  it  better  to  belong  to  a  large  than  to  a  small  nation. 
It  assists  in  production,  and  it  restricts  foreign  competition  and  favors 
its  own  citizens  above  foreigners  in  the  matter  of  access  to  productive 
opportunities.  In  both  these  kinds  of  assistance,  which  may  be 
broadly  classed  as  productive  and  discriminatory,  much  of  the  benefit 
comes  without  definite  state  action,  as  a  natural  by-product  of  a 
community  of  language  and  laws,  and  of  the  sense  of  solidarity  felt 


2  ECONOMICS  OF  WAR 

by  private  individuals  that  leads  them  to  look  first  to  their  com- 
patriots in  buying  and  selling,  or  in  organizing  to  buy  or  sell.  Perhaps 
the  chief  productive  services  of  nations  from  our  present  point  of  view 
can  be  grouped  under  the  head  of  furthering,  conserving,  disseminat- 
ing, and  unifying  the  knowledge  which  is  at  the  basis  of  economic 
efficiency,  a  fact  which  List  and  Schmoller  both  emphasize.  A 
common  system  of  laws  and  trade  customs  is  extremely  important 
from  this  point  of  view,  and  a  foreign  system  is  a  genuine  obstacle. 
The  consular  service  is  the  branch  of  this  system  which  (selection 
IV,  i)  has  most  to  do  with  the  causes  of  war,  and  it  is,  curiously 
enough,  just  because  this  particular  service  is  on  a  competitive,  not 
on  a  purely  co-operative,  basis  that  it  is  inimical  to  peace. 

But  the  national  solidarity  that  breeds  war  springs  chiefly,  not 
from  these  productive  services,  but  from  the  discriminatory  policies 
of  protectionism,  concession-granting,  etc.  (See  readings  on  "  Com- 
mercial Rivalry.")  These  solidarities  are  real,  as  the  German 
writers  contend,  though  they  need  not  be  always  so  arrayed  as  to 
provoke  wars.  A  universal  state  could  render  all  the  productive 
services  better  than  the  present  nations,  and  its  existence  would 
render  the  discriminatory  services  superfluous.  The  reader  will  note, 
in  the  two  selections  from  German  writers  which  open  this  chapter, 
the  prophecy  of  larger  and  larger  economic  units,  growing  by  free 
union  as  well  as  by  conquest.  Norman  Angell  may  be  regarded  as 
going  one  step  farther  in  that  he  finds  the  present  national-economic 
units  already  obsolete  and  reaches  out  to  grasp  what  the  earlier 
German  writers  merely  dreamed  of. 

Pressure  of  population  has  apparently  not  caused  an  actual 
decrease  in  national  well-being,  but  it  has  caused  a  cramped  feeling. 
For  the  world  as  a  whole,  the  ultimate  answer  must  be  the  limitation 
of  increase,  but  as  long  as  a  strong  race  can  increase  at  the  expense  of 
other  races,  it  will  not  submit  to  this  unwelcome  alternative,  which 
carries  with  it  things  that  seem  to  many  to  bear  the  stigma  of 
degeneracy  (selection  II,  2). 

The  entire  subject  of  ''Economic  Imperialism"  is  one  that  is 
humanly  impossible  to  treat  without  bias,  and  this  bias  is  in  itself 
one  of  the  data  in  the  problem.  The  readings  do  not  prove  that  trade 
in  peaceful  times  does  or  does  not  depend  on  a  navy,  riches  on  colonies, 
world-progress  on  British  development  of  Mesopotamia  or  on  German 
development  of  Mesopotamia,  but  they  do  prove  that  people  believe 
these  things,  and  will  go  to  war  over  these  beliefs.  Each  side  believes 


the  good  of  humanity  demands  the  triumph  of  that  side.  The 
British  writers  on  Mesopotamia  and  India  believe  this  because  the 
British  are  a  more  humane  and  liberal  people  than  others,  their 
empire  having  been  almost  forced  on  them  as  a  by-product  of  trade. 
General  von  Bernhardi  (selection  III,  i)  believes  it  because  the 
Germans  are  the  strongest  race  by  the  test  of  war,  and  hence  should 
people  the  world  of  the  future,  under  the  national  organization  which 
is  the  secret  of  their  strength.  Accordingly  it  would  seem  that 
weaker  races  must  give  ground,  and  comfort  themselves  with  ultimate 
benefits  derived  from  an  existence  in  the  same  world  with  a  higher 
civilization  than  any  they  could  attain  by  themselves.  Canon  Parfit 
(selection  III,  4)  tells  us  how  Germany's  control  of  the  Turkish  govern- 
ment looks  to  an  Englishmen.  But  how  did  Great  Britain's  attempts 
to  "introduce  reforms"  into  Turkey  look  to  Germany?  Simply  a 
rival  attempt  to  gain  control,  under  color  of  self-righteous  claims  to 
superior  virtue  which  the  German  did  not  for  a  moment  believe  and 
which  could  only  serve  to  convince  him  that  the  British  are  a  nation  of 
hypocrites.  Talk  about  the  "white  man's  burden"  has  the  same  effect. 

The  relation  between  war  and  economic  imperialism  is  one  of  the 
most  sinister  of  the  many  vicious  circles  within  which  humanity  is 
bound.  Protective  tariffs  lead  to  war,  and  the  prospect  of  future 
wars  is  the  principal  reason,  other  than  selfish  class  interests,  for 
continuing  a  protective  tariff.  A  nation  must  be  self-sufficient  and 
hence  must  expand  till  it  commands  a  well-rounded  complement  of 
economic  resources.  But  the  principal  reason  why  this  seems  neces- 
sary is  to  insure  the  economic  life  of  the  nation  when  trade  is  cut  off 
by  wars,  blockades,  or  protective  tariffs.  And  the  process  of  expand- 
ing so  as  to  achieve  self-sufficiency  is  precisely  what  makes  war 
inevitable.  The  German  feels  that  it  is  intolerable  for  his  trade  to 
pass  under  British  guns,  though  the  trade  is  not  damaged  as  long  as 
the  guns  do  not  shoot.  Is  it  worth  while,  then,  to  bring  on  a  war, 
and  give  the  guns  their  chance  to  shoot,  chiefly  in  order  to  gain  a 
position  such  that  in  some  future  war  his  trade  may  not  suffer  as 
much  from  the  shooting  of  the  guns  as  it  has  suffered  in  this  one  ? 

It  is  significant  that  the  immediate  cause  of  the  present  war, 
namely  the  Balkan  crisis,  is  hardly  touched  upon  in  this  chapter.  It 
is  an  incident  in  a  far  larger  game.  The  present  trouble  was  pre- 
cipitated, however,  by  the  Balkan  wars,  which  made  the  Balkan 
states  strong  and  put  a  check  on  Austrian  ambitions  to  dominate 
this  region — a  check  which  appeared  final  to  the  English  diplomatist 


4  ECONOMICS  OF  WAR 

(selection  III,  5)  but  which  only  served  to  rouse  the  Central  Powers 
to  a  determination  to  make  good  their  position  at  any  cost. 

I.     The  Nation  as  an  Economic  Unit 
i.    THE  NATION  STANDS  FIRST1 

Between  each  individual  and  entire  humanity,  now  stands  the 
nation,  with  its  special  language  and  literature,  with  its  peculiar 
origin  and  history,  with  its  special  manners  and  customs,  laws  and 
institutions,  with  the  claims  of  all  these  for  existence,  independence, 
perfection,  and  continuance  for  the  future,  and  with  its  separate 
territory;  a  society  which,  united  by  a  thousand  ties  of  mind  and 
of  interests,  combines  itself  into  one  independent  whole  which  recog- 
nizes the  law  of  right  for  and  within  itself,  and  in  its  united  char- 
acter is  still  opposed  to  other  societies  of  a  similar  kind  in  their 
national  liberty,  and  consequently,  under  the  existing  conditions  of 
the  world,  can  maintain  self-existence  and  independence  only  by  its 
own  power  and  resources.  As  the  individual  chiefly  obtains  by 
means  of  the  nation  mental  culture,  power  of  production,  security,  and 
prosperity,  so  is  the  civilization  of  the  human  race  conceivable  and 
possible  only  by  means  of  the  civilization  and  development  of  the 
individual  nations. 

Meanwhile,  however,  an  infinite  difference  exists  in  the  condition 
and  circumstances  of  the  various  nations;  we  observe  among  them 
giants  and  dwarfs,  well-formed  bodies  and  cripples,  civilized,  half- 
civilized,  and  barbarous  nations;  but  in  all  of  them,  as  in  the  individ- 
ual human  being,  exists  the  impulse  of  self-preservation,  the  striving 
for  improvement  which  is  implanted  by  nature.  It  is  the  task  of 
politics  to  civilize  the  barbarous  nationalities,  to  make  the  small  and 
weak  ones  great  and  strong,  but,  above  all,  to  secure  to  them  existence 
and  continuance.  It  is  the  task  of  national  economy  to  accomplish 
the  economical  development  of  the  nation,  and  to  prepare  it  for  admis- 
sion into  the  universal  society  of  the  future. 

1  By  Friedrich  List.  Adapted  from  The  National  System  of  Political  Economy, 
pp.  141-43.  Lloyd's  Translation.  Copyright  by  Longmans,  Green  &  Co.,  1904. 

ED.  NOTE. — Friedrich  List  (1789-1846)  was  perhaps  the  most  vigorous 
German  economic  thinker  of  his  day,  a  forerunner  of  the  later  German  historical 
school,  and  actively  concerned  with  the  customs  union  which  paved  the  way  for 
the  creation  of  the  present  German  Empire  by  welding  the  German  states  into 
an  economic  unit.  His  National  System  was  first  published  in  1841. 


ECONOMIC  BACKGROUND  OF  WAR  5 

A  nation  in  its  normal  state  possesses  one  common  language  and 
literature,  a  territory  endowed  with  manifold  natural  resources, 
extensive,  and  with  convenient  frontiers  and  a  numerous  population. 
Agriculture,  manufactures,  commerce,  and  navigation  must  all  be 
developed  in  it  proportionately;  arts  and  sciences,  educational 
establishments,  and  universal  cultivation  must  stand  in  it  on  an  equal 
footing  with  material  production.  Its  constitution,  laws,  and  insti- 
tutions must  afford  to  those  who  belong  to  it  a  high  degree  of  security 
and  liberty,  and  must  promote  religion,  morality,  and  prosperity; 
in  a  word,  must  have  the  well-being  of  its  citizens  as  its  object.  It 
must  possess  sufficient  power  on  land  and  at  sea  to  defend  its  inde- 
pendence and  to  protect  its  foreign  commerce.  It  will  possess  the 
power  of  beneficially  affecting  the  civilization  of  less  advanced  nations, 
and  by  means  of  its  own  surplus  population  and  of  their  mental  and 
material  capital  to  found  colonies  and  beget  new  nations. 

A  large  population  and  an  extensive  territory  endowed  with 
manifold  national  resources  are  essential  requirements  of  the  normal 
nationality;  they  are  the  fundamental  conditions  of  mental  cultivation 
as  well  as  of  material  development  and  political  power.  A  nation 
restricted  in  the  number  of  its  population  and  in  territory,  especially 
if  it  has  a  separate  language,  can  possess  only  a  crippled  literature, 
crippled  institutions  for  promoting  art  and  science.  A  small  state 
can  never  bring  to  complete  perfection  within  its  territory  the  various 
branches  of  production.  In  it  all  protection  becomes  mere  private 
monopoly.  Only  through  alliances  with  more  powerful  nations,  by 
partly  sacrificing  the  advantages  of  nationality,  and  by  excessive 
energy,  can  it  maintain  with  difficulty  its  independence. 

A  nation  which  possesses  no  coasts,  mercantile  marine,  or  naval 
power,  or  has  not  under  its  dominion  and  control  the  mouths  of  its 
rivers,  is  in  its  foreign  commerce  dependent  on  other  countries;  it 
can  neither  establish  colonies  of  its  own  nor  form  new  nations;  all 
surplus  population,  mental  and  material  means,  which  flows  from 
such  a  nation  to  uncultivated  countries  is  lost  to  its  own  literature, 
civilization,  and  industry,  and  goes  to  the  benefit  of  other  nationalities. 

Territorial  deficiencies  of  the  nation  can  be  remedied  either  by 
means  of  hereditary  succession,  as  in  the  case  of  England  and  Scot- 
land; or  by  purchase,  as  in  the  case  of  Florida  and  Louisiana;  or  by 
conquests,  as  in  the  case  of  Great  Britain  and  Ireland. 

In  modern  times  a  fourth  means  has  been  adopted,  which  leads 
to  this  object  in  a  manner  much  more  in  accordance  with  justice  and 


6  ECONOMICS  OF  WAR 

with  the  prosperity  of  nations  than  conquest,  and  which  is  not  so 
dependent  on  accidents  as  hereditary  succession,  namely,  the  union 
of  the  interests  of  various  states  by  means  of  free  conventions.  By 
its  tariff  union,  the  German  nation  first  obtained  one  of  the  most 
important  attributes  of  its  nationality. 

2.    NATIONAL  ECONOMIC  UNITY1     , 

What,  to  each  in  its  time,  gave  riches  and  superiority  first  to 
Milan,  Venice,  Florence,  and  Genoa;  then  later  to  Spain  and  Portugal; 
and  now  to  Holland,  France,  and  England,  and  to  some  extent  to 
Denmark  and  Sweden,  was  a  state  policy  in  economic  matters  as 
superior  to  the  territorial  as  that  had  been  to  the  municipal.  Those 
states  began  to  weave  the  great  economic  improvement  of  the  time 
into  their  political  institutions  and  policy,  and  to  bring  about  an 
intimate  relation  between  the  one  and  the  other.  States  arose, 
forming  united  and  therefore  strong  and  wealthy  economic  bodies, 
quite  different  from  earlier  conditions.  It  was  not  only  a  question  of 
state  armies,  fleets,  and  civil  services;  it  was  a  question  rather  of 
unifying  systems  of  finance  and  economy  which  should  encompass  the 
forces  of  millions  and  whole  countries  and  give  unity  to  their  social 
life.  There  had  always  been  great  states;  but  they  had  been  bound 
together  neither  by  traffic  nor  by  the  organization  of  labour  nor  by 
any  other  like  forces.  The  whole  internal  history  of  the  seventeenth 
and  eighteenth  centuries,  not  only  in  Germany  but  everywhere  else, 
is  summed  up  in  the  opposition  of  the  economic  policy  of  the  state 
to  that  of  the  town,  the  district,  and  the  several  estates;  the  whole 
foreign  history  is  summed  up  in  the  opposition  to  one  another  of  the 
separate  interests  of  the  newly  rising  states,  each  of  which  sought  to 
obtain  and  retain  its  place  in  the  circle  of  European  nations  and  in 
that  foreign  trade  which  now  included  America  and  India.  Questions 
of  political  power  were  at  issue,  which  were,  at  the  same  time, 
questions  of  economic  organization.  What  was  at  stake  was  the 
creation  of  real  political  organizations,  the  centre  of  which  should  be, 
not  merely  a  state  policy  reaching  out  in  all  directions,  but  rather 
the  living  heartbeat  of  a  united  sentiment. 

•By  Gustav  Schmoller.  Adapted  from  The  Mercantile  System,  pp.  48-79. 
Copyright  by  Macmillan  &  Co.,  189 5$  The  original  was  published  in  1884. 

ED.  NOTE. — Gustav  Schmoller  (1838 — )  is  a  professor  at  the  University  of 
Berlin,  member  of  the  Prussian  Herrenhaus,  and  one  of  the  foremost  German 
economists. 


ECONOMIC  BACKGROUND  OF  WAR  7 

Only  he  who  thus  conceives  of  mercantilism  will  understand  it; 
in  its  innermost  kernel  it  is  nothing  but  state  making — not  state 
making  in  a  narrow  sense,  but  state  making  and  national-economy 
making  at  the  same  time;  state  making  in  the  modern  sense,  which 
creates  out  of  the  political  community  an  economic  community,  and 
so  gives  it  a  heightened  meaning.  The  essence  of  the  system  lies,  not  in 
some  doctrine  of  money  or  of  the  balance  of  trade;  not  in  tariff  bar- 
riers, protective  duties,  or  navigation  laws;  but  in  something  far 
greater — namely,  in  the  total  transformation  of  society  and  its  organi- 
zation, as  well  as  of  the  state  and  its  institutions — in  the  replacing 
of  a  local  and  territorial  economic  policy  by  that  of  the  national  state. 

In  proportion  as  the  economic  interests  of  whole  states,  after 
much  agitation  of  public  opinion,  found  a  rallying  point  in  certain 
generally  accepted  postulates,  there  could  not  fail  to  arise  the  thought 
of  a  national  policy,  of  protection  by  the  state  against  the  outside 
world,  and  of  the  support  by  the  state  of  great  national  interests  in 
their  struggle  with  foreign  countries.  The  conception  of  a  national 
agriculture,  of  a  national  industry,  of  national  shipping  and  fisheries, 
of  national  currency  and  banking  systems,  of  a  national  division  of 
labour,  and  of  a  national  trade  must  have  arisen  before  the  need  was 
felt  of  transforming  old  municipal  and  territorial  institutions  into 
national  and  state  ones.  But  as  soon  as  that  had  taken  place  it  must 
have  seemed  a  matter  of  course  that  the  whole  power  of  the  state,  in 
relation  to  other  countries  as  well  as  at  home,  should  be  placed  at  the 
service  of  these  collective  interests,  just  as  the  political  power  of  the 
towns  and  territories  had  served  their  municipal  and  district  interests. 
The  struggle  for  existence,  in  economic  life  in  particular  as  in  social 
life  in  general,  is  necessarily  carried  on  at  all  times  by  smaller  or 
larger  groups  and  communities.  That  will  also  be  the  case  in  all  time 
to  come.  And  the  practice  and  theory  of  those  times,  answering,  as 
they  did,  to  this  universal  tendency,  were  nearer  reality  than  the  theory 
of  Adam  Smith;  and  so  also  were  the  main  ideas  of  Friedrich  List. 

All  economic  and  political  life  rests  upon  physical  mass-move- 
ments, mass-sentiments,  and  mass-conceptions  gravitating  around 
certain  centres.  That  age  could  begin  to  think  and  act  in  the  spirit 
of  free  trade,  which  had  left  so  far  behind  it  the  toilsome  work  of 
national  development  that  it  regarded  its  best  results  as  matters  of 
course  and  forgot  the  struggle  they  had  cost;  an  age  which,  with 
cosmopolitan  sentiments,  with  great  institutions  and  interests  of 
international  traffic,  with  a  humanise,d  international  law,  and  an 


8  ECONOMICS  OF  WAR 

individualist  literature  everywhere  diffused  was  already  beginning  to 
live  in  the  ideas  and  tendencies  of  a  world-economy. 

The  long  wars,  each  lasting  several  years  or  even  decades,  which 
fill  the  whole  period  from  1600  to  1800  and  have  economic  objects  as 
their  main  aim;  the  open  declaration  by  the  Grand  Alliance  of  1689 
that  their  object  was  the  destruction  of  French  commerce;  the 
prohibition  by  the  Allies  of  all  trade,  even  by  neutrals,  with  France, 
without  the  slightest  regard  to  international  law;  all  this  shows  the 
spirit  of  the  time  in  its  true  light.  The  national  passion  of  economic 
rivalry  had  been  raised  to  such  a  height  that  it  was  only  in  wars  like 
these  that  it  could  find  its  full  expression  and  satisfaction.  To  be 
content,  in  the  intermediate  years  of  peace,  to  carry  on  the  conflict 
with  prohibition,  tariffs,  and  navigation  laws  instead  of  with  sea 
fights;  to  give,  as  they  did  in  these  years  of  peace,  somewhat  more 
attention  to  the  infant  voice  of  international  law  than  in  time  of  war — 
this  was  in  itself  a  moderating  of  international  passion. 

In  spite  of  the  fact  that  it  is  the  individual  and  the  family  that 
labour,  produce,  trade,  and  consume,  it  is  the  larger  social  bodies 
which,  by  their  common  attitude  and  action,  intellectual  as  well  as 
practical,  create  all  those  economic  arrangements  of  society,  in 
relation  both  to  those  within  and  to  those  without,  upon  which 
depend  the  economic  policy  of  every  age  in  general  and  its  com- 
mercial policy  in  particular.  We  saw  that  the  feeling  and  recognition 
of  economic  solidarity,  in  regard  alike  to  those  within  and  those 
without,  necessarily  created  at  the  same  time  a  corporate  egoism. 
From  this  egoism  the  commercial  policy  of  every  age  receives  its 
impulse. 

We  have,  in  the  next  place,  laid  emphasis  on  the  proposition  that 
historical  progress  has  consisted  mainly  in  the  establishment  of  ever 
larger  and  larger  communities  as  the  controllers  of  economic  policy 
in  place  of  small.  The  seventeenth  and  eighteenth  centuries  seemed 
to  us  the  birth  hour  of  modern  states  and  modern  national  economies, 
and  therefore  to  have  been  necessarily  characterized  by  a  selfish 
national  commercial  policy  of  a  harsh  and  rude  kind.  Whether 
such  a  policy  was  rightly  directed  in  details  depended  on  the  informa- 
tion and  sagacity  of  the  personages  who  guided  the  state;  whether  it 
was  to  be  justified  as  a  whole,  whether  as  a  whole  it  had  a  probability 
of  success,  that  depended, -then  as  ever,  on  the  question  whether  it 
accompanied  a  great  upward-moving  stream  of  national  and  economic 
life. 


ECONOMIC  BACKGROUND  OF  WAR  9 

The  progress  of  the  nineteenth  century  beyond  the  mercantilist 
policy  of  the  eighteenth  depends — keeping  to  this  thought  of  a  succes- 
sion of  ever-larger  social  communities — on  the  creation  of  leagues  of 
states,  on  alliances  in  the  matter  of  customs  and  trade,  on  the  moral 
and  legal  community  of  all  civilised  states,  such  as  modern  inter- 
national law  is  more  and  more  bringing  into  existence  by  means 
of  a  network  of  international  treaties. 

But,  of  course,  by  the  side  of  this  stands  another  and  not  less 
important  chain  of  connected  phenomena,  which  also  helps  to  explain 
the  contrast  between  the  nineteenth  century  on  the  one  side  and  the 
seventeenth  and  eighteenth  on  the  other.  The  struggle  of  social 
bodies  with  one  another,  which  is  at  times  military,  at  other  times 
merely  economic,  has  a  tendency,  with  the  progress  of  civilization,  to 
assume  a  higher  character  and  to  abandon  its  coarsest  and  most 
brutal  weapons.  The  instinct  becomes  stronger  of  a  certain  solidarity 
of  interests,  of  a  beneficent  interaction,  of  an  exchange  of  goods  from 
which  both  rivals  gain.  It  was  in  this  way  that  the  strife  of  towns  and 
territories  had  been  softened  and  moderated  with  time  until,  on  the 
foundation  of  still  greater  social  bodies,  the  states,  it  had  passed  into 
a  moral  influence  and  obligation  to  educate  and  assist  the  weaker 
members  within  the  larger  community. 

So  the  eighteenth-century  ideas  of  a  human  cosmopolitanism 
began  to  instil  into  men  the  thought  of  a  change  of  policy  in  the 
economic  struggles  of  European  states  at  the  very  time  when  the 
international  rivalry  had  reached  its  highest  point. 

3.    NATIONAL  ECONOMIC  RIVALRY  AN  ILLUSION 

A.1      MISCONCEPTIONS   AS   TO   THE   NATURE   OF   GOVERNMENT   AND 
THE   PLACE   OF  POLITICAL  AUTHORITY 

No  less  a  person  than  Admiral  Mahan  assures  us  that  the  struggle 
for  territory  between  nations  is  justified  economically  by  the  fact  that 
just  as  a  steel  trust  has  an  advantage  in  owning  its  own  ore  fields,  its 
stores  of  raw  material,  so  a  country  has  an  advantage  in  owning 
colonies  and  conquered  provinces.  We  see  at  once  the  idea:  the 
nation  is  a  commercial  corporation  like  a  steel  trust. 

1  By  Norman  Angell.  Adapted  from  The  Problems  of  the  War — and  the  Peace, 
pp.  58-62.  Copyright  by  William  Heinemann,  London. 

ED.  NOTE. — Norman  Angell  (Norman  Angell  Lane)  (1874 — )  is  a  prominent 
British  journalist  and  author  of  a  number  of  books  on  subjects  connected  with  mili- 
tarism, representing  the  cosmopolitan  and  anti-militarist  wing  of  British  thought. 


10  ECONOMICS  OF  WAR 

Well,  of  course,  a  moment's  reflection  shows  us  that  the  analogy 
is  an  absolutely  false  one;  that  these  pictures  of  nations  as  rival  units 
competing  one  against  the  other  bear  no  sort  of  resemblance  to  the 
facts.  To  begin  with,  the  nations,  except  in  so  far  as  the  carrying  of 
letters  and  in  some  cases  the  manufacture  of  matches  and  tobacco  are 
concerned,  are  not  commercial  corporations  at  all,  but  political  and 
administrative  ones,  with  functions  of  a  like  kind  to  those  possessed 
by  our  villages,  towns,  or  counties;  and  Germany  no  more  competes 
with  Britain  than  Birmingham  does  with  Sheffield.  It  is  not  the 
state  which  owns  and  exploits  the  ore  fields  or  farms  or  factories  in 
the  way  that  the  steel  trust  owns  its  sources  of  raw  material.  The 
state  merely  polices  and  guarantees  possession  to  the  real  owners, 
the  shareholders,  who  may  be  foreigners.  The  mere  fact  that  the 
area  of  political  administration  would  be  enlarged  or  contracted  by 
the  process  which  we  call  conquest  has  little  more  direct  bearing  upon 
such  economic  questions  as  the  ownership  of  raw  material  by  the 
populations  concerned  than  the  enlargement  of  a  town's  area  by  the 
inclusion  of  outlying  suburbs  would  have  upon  the  trading  of  the  citi- 
zens of  such  towns.  It  is  of  course  conceivable  that  they,  or  some, 
might  incidentally  gain  or  incidentally  lose;  but  an  increase  of 
wealth. is  no  necessary  consequence  of  the  increase  of  municipal 
territory. 

Not  merely  is  it  untrue  to  represent  the  nation  as  carrying  on 
trade  against  other  nations,  untrue  to  represent  the  state  as  a  cor- 
poration carrying  on  the  trade  of  its  people,  but  it  is  just  as  untrue 
to  represent  the  nations  as  economic  units  in  the  field  of  international 
trade.  We  talk  and  think  of  ''German"  trade  as  competing  in  the 
world  with  "British"  trade,  and  we  have  in  our  mind  that  what  is 
the  gain  of  Germany  is  the  loss  of  Britain,  or  vice  versa.  It  is 
absolutely  untrue.  There  is  no  such  national  conflict,  no  such  thing 
as  "British"  trade  or  "German"  trade  in  this  sense.  An  ironmaster 
in  Birmingham  may  have  his  trade  taken  away  by  the  competition 
of  an  ironmaster  in  Essen,  just  as  he  may  have  it  taken  away  by  one  in 
Glasgow,  or  Belfast,  or  Pittsburgh,  but  in  the  present  condition  of 
the  division  of  labour  in  the  world  it  would  be  about  as  true  to  speak 
of  Britain  suffering  by  the  competition  of  Germany  as  it  would  be  to 
talk  of  light-haired  people  suffering  by  the  competition  of  the  dark- 
haired  people,  or  of  the  fact  that  those  who  live  in  houses  with  even 
numbers  are  being  driven  out  of  business  by  those  who  live  in  odd- 
numbered  houses.  Such  delimitations  do  not  mark  the  economic 


ECONOMIC  BACKGROUND  OF  WAR  II 

delimitations;  the  economic  function  cuts  athwart  them;  the  frontiers 
of  the  two  do  not  coincide;  and  though  we  may  quite  legitimately  pre- 
fer to  see  a  British  house  beat  a  German  one  in  trade,  that  victory  will 
not  necessarily  help  our  group  as  a  whole  against  his  group  as  a  whole. 

When  we  talk  of  ''German"  trade  in  the  international  field,  what 
do  we  mean?  Here  is  an  ironmaster  in  Essen  making  locomotives 
for  a  light  railway  in  an  Argentine  province  (the  capital  for  which  has 
been  subscribed  in  Paris) ,  which  has  become  necessary  because  of  the 
exporf  of  wool  to  Bradford,  where  the  trade  has  developed  owing  to 
the  sales  in  the  United  States,  due  to  high  prices  produced  by  the 
destruction  of  sheep  runs  owing  to  the  agricultural  development  of 
the  West.  But  for  the  money  found  in  Paris  (due  perhaps  to  good 
crops  in  wine  and  olives  sold  mainly  in  London  and  New  York)  and 
the  wool  needed  by  the  Bradford  manufacturer  (who  has  found  a 
market  for  blankets  among  miners  in  Montana,  who  are  smelting 
copper  for  a  cable  in  China,  which  is  needed  because  the  encourage- 
ment given  to  education  by  the  Chinese  Republic  has  caused  Chinese 
newspapers  to  print  cable  news  from  Europe) — but  for  such  factors 
as  these  and  a  whole  chain  of  equally  interdependent  ones  throughout 
the  world,  the  ironmaster  in  Essen  would  not  have  been  able  to  sell 
his  locomotives.  How,  therefore,  can  you  describe  it  as  part  of  the 
trade  of  "Germany"  which  is  in  competition  with  the  trade  of 
"Britain,"  or  "France,"  or  "America"?  But  for  the  British, 
French,  and  American  trade  it  could  not  have  existed  at  all.  You 
may  say  that  if  the  Essen  ironmaster  could  have  been  prevented  from 
selling  his  locomotives  the  trade  would  have  gone  to  a  British  one. 
But  this  community  of  German  workmen,  called  into  existence  by  the 
Argentine  trade,  maintains  by  its  consumption  of  coffee  a  plantation 
in  Brazil,  which  buys  its  machinery  in  Sheffield.  The  destruction, 
therefore,  of  the  Essen  trade,  while  it  might  have  given  business  to 
the  British  locomotive  maker,  would  have  taken  it  from,  say,  a  British 
agricultural  implement  maker.  The  economic  interests  involved  sort 
themselves  irrespectively  of  the  national  groupings. 

What,  of  course,  we  fail  to  realise  in  this  connection  is  that  trade  is 
necessarily  exchange;  if  we  are  to  sell  anything  to  anyone  the  buyer 
must  have  money.  Roughly,  and  largely  in  the  European  nations, 
he  is  a  customer  to  the  extent  that  he  is  a  competitor.  It  is  a  note- 
worthy fact,  the  full  significance  of  which  I  have  not  space  to  deal 
with  now,  that  it  is  occasionally  those  nations  which  most  resemble 
one  another  in  their  industrial  make-up  that  are  mutually  the  best 


12  ECONOMICS  OF  WAR 

customers.  Great  Britain  sells  more  per  head  of  population  to  Bel- 
gium, a  highly  industrialised  nation,  than  to  Canada  or  Russia, 
mainly  agricultural  nations. 

What,  I  am  dealing  with  here  is  not  an  ignorance  of  certain 
statistical  facts,  or  a  failure  to  understand  certain  obscure  points" 
in  economics;   not  the  use  of  mere  loose  language,  but  a  funda- 
mentally untrue  conception,  a  false  picture  of  the  state  in  its  relation 
to  the  economic  activities  of  its  people. 

B.1      POLITICAL  VERSUS   ECONOMIC  UNITS 

Co-operation  between  nations  has  become  essential  for  the  very 
life  of  their  peoples.  But  that  co-operation  does  not  take  place  as 
between  states  at  all.  A  trading  corporation  "Britain"  does  not  buy 
cotton  from  another  corporation  "America."  A  manufacturer  in 
Manchester  strikes  a  bargain  with  a  merchant  in  Louisiana  in  order 
to  keep  a  bargain  with  a  dyer  in  Germany,  and  three  or  a  much  larger 
number  of  parties  enter  into  virtual,  or  perhaps  actual,  contract  and 
form  a  mutually  dependent  economic  community  (numbering,  it  may 
be,  with  the  work  people  in  the  groups  of  industries  involved,  some 
millions  of  individuals) — an  economic  entity  so  far  as  one  can  exist 
which  does  not  include  all  organized  society.  The  special  interests 
of  such  a  community  may  become  hostile  to  those  of  another  com- 
munity, but  it  will  almost  certainly  not  be  a  "national"  one,  but  one 
of  a  like  nature,  say  a  shipping  ring  or  groups  of  international  bankers 
or  stock-exchange  speculators.  The  frontiers  of  such  communities 
do  not  coincide  with  the  areas  in  which  operate  the  functions  of  the 
state.  How  could  a  state,  say  Britain,  act  on  behalf  of  an  economic 
entity  such  as  that  just  indicated  ?  By  pressure  against  America  or 
Germany?  But  the  community  against  which  the  British  manu- 
facturer in  this  case  wants  pressure  exercised  is  not  "America"  or 
"Germany" — both  Americans  and  Germans  are  his  partners  in  the 
matter.  He  wants  it  exercised  against  the  shipping  ring,  or  the 
speculators,  or  the  bankers,  who  in  part  are  British.  If  Britain 
injures  America  and  Germany  as  a  whole  she  injures  necessarily  the 
economic  entity  which  it  was  her  object  to  protect. 

This  establishes  two  things,  therefore:  the  fact  that  the  political 
and  economic  units  do  not  coincide  and  the  fact,  which  follows  as  a 
consequence,  that  action  by  political  authorities  designed  to  control 

1  By  Norman  Angell  (see  p.  9).  Adapted  from  Arms  and  Industry,  pp.  xviii- 
xxvi.  Published  by  G.  P.  Putnam's  Sons,  1914. 


ECONOMIC  BACKGROUND  OF  WAR  13 

economic  activities  which  take  no  account  of  the  limits  of  political 
jurisdiction  is  necessarily  irrelevant  and  ineffective.  The  assumption 
that  states  are  economically  rivals  and  that  economic  advantage 
accrues  to  the  possession  of  political  power  based  on  military  force 
postulates  communities  capable  of  political  and  geographical  limita- 
tion that  are  self-contained,  and  postulates  also  the  effective  control 
of  the  social  and  economic  activities  of  other  similar  communities  by 
the  military  force  of  our  own.  The  great  nations  of  modern  Europe 
have  passed  out  of  that  stage  of  development  in  which  such  a  con- 
ception bears  even  a  distant  relation  to  the  facts.  This  condition 
carries  with  it  the  intangibility  of  wealth  so  far  as  foreign  state  action 
is  concerned,  because  any  state  destroying  wealth  in  another  must 
destroy  wealth  in  its  own,  since  the  unit  intersects  the  two  areas. 

On  the  economic  side  this  development  is  relatively  modern — its 
vital  form  belongs  to  our  generation.  The  prime  factor  therein  has, 
of  course,  been  the  improvement  of  communication  and  the  cheapen- 
ing of  transport,  setting  up  a  division  of  labour,  with  its  consequent 
interdependence  and  solidarity  of  interest,  between  groups  situated 
in  different  nations,  thus  rendering  hostility  based  on  the  lines  of 
political  geography  irrelevant  to  real  collision  of  interest  and  moral 
conflict.  It  is  by  the  fact  of  having  set  up  this  process,  and  not  by  the 
fact  of  having  brought  people  of  different  nations  into  touch,  that 
improved  communication  is  transforming  the  character  of  inter- 
national relations. 

The  weight  of  an  unexamined  and  obsolete  political  terminology 
is,  though  extremely  subtle,  powerful.  A  professor  of  history  and 
a  student  of  constitutional  law  in  a  great  university  once  thought 
to  score  a  point  by  asking,  "Were  those  who  believed  that  possession 
of  extended  territory  did  not  enrich  a  people  prepared  to  see  Great 
Britain  give  away  Canada?"  He  was  asked  how  he  supposed  Great 
Britain  could  "give  away"  the  inhabitants  of  Canada,  and  what 
proprietary  right  she  possessed  in  those  eight  million  human 
beings  ? 

Both  the  phrases  and  the  pictures  which  they  imply  are  of  course 
an  historical  survival  from  a  time  when  a  colonial  "plantation"  was 
really  somebody's  possession  (the  monopoly  of  some  company  of 
trading  adventurers  or  a  Court  favourite) ;  or  from  a  still  earlier  time 
when  political  "ownership"  was  a  quite  real  thing  from  the  point  of 
view  of  some  reigning  family  to  whom  a  country  was  an  estate;  or 
from  the  period  in  Europe  when  the  trade  of  "government"  was  as 


14  ECONOMICS  OF  WAR 

much  the  professional  interest  of  an  oligarchic  group  as  banking  or 
cotton-spinning  are  definite  industrial  interests  of  our  day. 

We  have  here  then  two  factors:  the  general  currency  of  words 
and  pictures  that  were  created  to  indicate  conditions  that  have 
passed  away,  and  the  interpretation  of  these  words  and  pictures  by 
people  compelled  by  the  inevitable  circumstances  of  their  lives  to 
form  their  political  conceptions  hurriedly  and  superficially — from 
the  newspaper  headline  or  the  vague  chatter  of  smoking-room  leisure. 

II.     The  Pressure  of  Population 
i.    BIRTH-RATES  AND  INTERNATIONAL  RIVALRY1 

A  century  ago  Malthus  startled  the  world  by  demonstrating  that 
our  race  naturally  multiplies  faster  than  it  can  increase  its  food 
supply,  with  the  result  that  population  tends  ever  to  press  painfully 
upon  the  means  of  subsistence.  So  long  as  mankind  reproduces 
freely,  numbers  can  be  adjusted  to  resources  only  by  the  grinding  of 
destructive  agencies,  such  as  war,  famine,  poverty,  and  disease.  To 
be  sure,  this  ghastly  train  of  ills  may  be  escaped  if  only  people  will 
prudently  postpone  marriage.  Since,  however,  late  marriage  calls 
for  the  exercise  of  more  foresight  and  self-control  than  can  be  looked 
for  in  the  masses,  Malthus  painted  the  future  of  humanity  with  a 
somberness  that  gave  political  economy  its  early  nickname  of  the 
"dismal  science." 

Malthus  is  not  in  the  least  "refuted"  by  the  fact  that  during  his 
century  the  inhabitants  of  Europe  leaped  in  number  from  one  hundred 
and  eighty-seven  millions  to  four  hundred  millions,  with  no  increase, 
but  rather  diminution,  of  misery.  It  is  true,  unprecedented  successes 
in  augmenting  the  food  supply  have  staved  off  the  overpopulation 
danger.  Within  a  lifetime,  not  only  have-  the  arts  of  food  raising 
made  giant  strides,  but,  at  the  world's  rim,  great  virgin  tracts  have 
been  brought  under  the  plow,  while  steam  hurries  to  the  larders  of  the 
Old  World  their  surplus  produce.  But  such  a  bounty  of  the  gods  is 
not  rashly  to  be  capitalized.  While  there  is  no  limit  to  be  set  to  the 
progress  of  scientific  agriculture,  no  one  can  show  where  our  century 
is  to  find  its  Mississippi  Valley,  Argentina,  Canada,  or  New  Zealand 

1  By  Edward  Alsworth  Ross.  Adapted  from  Changing  America,  pp.  32-49. 
Copyright  by  Century  Co.,  1912. 

ED.  NOTE. — E.  A.  Ross  (1866 — )  is  professor  of  sociology  at  the  University 
of  Wisconsin  and  one  of  the  most  prominent  American  sociologists. 


ECONOMIC  BACKGROUND  OF  WAR  15 

to  fill  with  herds  or  farms.  The  vaunted  plenty  of  our  time  adjourns 
but  does  not  dispel  the  haunting  vision  of  a  starving  race  on  a  crowded 
planet. 

Nevertheless  the  clouds  that  hung  low  about  the  future  are 
breaking.  The  terrible  Malthus  failed  to  anticipate  certain  influences 
which  in  some  places  have  already  so  far  checked  multiplication  as  to 
ameliorate  the  lot  of  even  the  lower  and  broader  social  layers.  The 
sagging  of  the  national  birth-rate  made  its  first  appearance  about 
fifty  years  ago  in  France,  thereby  giving  the  other  peoples  a  chance 
to  thank  God  they  were  not  as  these  decadent  French.  But  the  thing 
has  become  so  general  that  today  no  people  dares  to  point  the  finger 
of  scorn.  In  1878  the  fall  of  the  birth-rate  began  in  England.  During 
the  eighties  it  invaded  Belgium,  Holland,  and  Switzerland.  In  1889 
it  seized  with  great  virulence  upon  Australia.  Just  before  the  close 
of  the  century  Finland,  Italy,  and  Hungary  fell  into  line.  In  Germany 
and  Austria  it  is  only  within  four  or  five  years  that  the  economists 
have  begun  to  discuss  "our  diminishing  fecundity."  In  all  Christen- 
dom only  Russia,  the  Balkan  States,  and  French  Canada  show 
the  old-fashioned  birth-rates  of  forty,  fifty,  or  even  fifty-five  per 
thousand.  The  tendency  in  the  United  States  is  best  revealed  in  the 
diminishing  number  of  children  under  five  years  to  each  thousand 
women  of  child-bearing  age.  The  decline  from  1860  to  1890  is 
24  per  cent. 

Owing  to  the  fact  that  the  death-rate  has  been  falling  even  faster 
than  the  birth-rate  there  is,  so  far,  no  slackening  in  the  growth  of 
numbers.  Indeed,  part  of  the  fall  in  the  birth-rate  merely  reflects  the 
increasing  proportion  of  aged. 

The  supreme  service  of  forethoughted  parenthood  is  that  it  bids 
fair  to  deliver  us  from  the  overpopulation  horror,  which  was  becoming 
more  imminent  with  every  stride  in  medicine  or  public  hygiene. 
Most  of  the  Western  peoples  have  now  an  excess  of  births  over  deaths 
of  i  per  cent  a  year.  If  even  a  third  of  this  increase  should  find  a 
footing  oversea,  then  home  expansion  would  still  be  such  that  at  a 
future  date,  no  more  remote  from  us  than  the  founding  of  Jamestown, 
Europe  would  groan  under  a  population  of  three  billions,  while  the 
United  States  of  that  day,  with  twice  as  many  people  as  Europe  now 
has,  would  be  to  China  what  China  is  to  the  present  United  States. 
Besides  its  attendant  misery  and  degradation,  population  pressure 
sharpens  every  form  of  struggle  among  men — competition,  class  strife, 
and  war — and  the  dream  of  a  moral  redemption  of  our  race  would 


1 6  ECONOMICS  OF  WAR 

vanish  into  thin  air  if  the  enlightened  peoples  had  failed  to  meet  the 
crisis  created  by  the  reduction  of  mortality. 

Now  that  cheap  travel  stirs  the  social  deeps  and  far-beckoning 
opportunity  fills  the  steerages,  immigration  becomes  ever  more 
serious  to  the  people  that  hopes  to  rid  itself  at  least  of  slums,  "  masses," 
and  "submerged.''  What  is  the  good  of  practising  prudence  in  the 
family  if  hungry  strangers  may  crowd  in  and  occupy  at  the  banquet 
table  of  life  the  places  reserved  for  its  children  ?  Shall  it,  in  order  to 
relieve  the  teeming  lands  of  their  unemployed,  abide  in  the  pit  of 
wolfish  competition  and  renounce  the  fair  prospect  of  a  growth  in 
suavity,  comfort,  and  refinement?  If  not,  then  the  low-pressure 
society  must  not  only  slam  its  doors  upon  the  indraught,  but  must 
double-lock  them  with  forts  and  ironclads  lest  they  be  burst  open  by 
assault  from  some  quarter  where  "cannon  food"  is  cheap. 

The  rush  of  developments  makes  it  certain  that  the  vision  of  a 
globe  "lapt  in  universal  law"  is  premature.  If  the  seers  of  the  mid- 
century  who  looked  for  the  speedy  triumph  of  free  trade  had  read 
their  Malthus  aright,  they  might  have  anticipated  the  tariff  barriers 
that  have  risen  on  all  hands  within  the  last  thirty  years.  So  today 
one  needs  no  prophet's  mantle  to  foresee  that  presently  the  world  will 
be  cut  up  with  immigration  barriers  which  will  never  be  leveled  until 
the  intelligent  accommodation  of  numbers  to  resources  has  greatly 
equalized  population  pressure  all  over  the  globe.  The  French  resent 
the  million  and  a  third  aliens  that  have  been  squeezed  into  hollow  and 
prosperous  France  by  pressure  in  the  neighbor  lands.  The  English 
restrict  immigration  from  the  Continent.  The  Germans  feel  the 
thrust  from  the  overstocked  Slavic  areas.  The  United  States, 
Canada,  Australia,  and  South  Africa  are  barring  out  the  Asiatic. 
Dams  against  the  colored  races,  with  spillways  of  course  for  students, 
merchants,  and  travelers,  will  presently  enclose  the  white  man's 
world.  Within  this  area  minor  dams  will  protect  the  high  wages  of 
the  less  prolific  peoples  against  the  surplus  labor  of  the  more 
prolific. 

Assuredly  every  small-family  nation  will  try  to  raise  such  a  dam 
and  every  big-family  nation  will  try  to  break  it  down.  The  outlook 
for  peace  and  disarmament  is  therefore  far  from  bright.  One  needs 
but  compare  the  population  pressures  in  France,  Germany,  Russia, 
and  Japan  to  realize  that  even  today  the  real  enemy  of  the  dove  of 
peace  is  not  the  eagle  of  pride  or  the  vulture  of  greed,  but  the 
stork! 


ECONOMIC  BACKGROUND  OF  WAR        ,    17 

2.    POPULATION  LIMITS  AND  SOCIAL  DECAY1 

Thus  far  attention  has  been  especially  invited  to  these  facts : 

1.  The  population  of  the  world  prior  to  1800  was  comparatively 
small. 

2.  The  increase  from  age  to  age  was  exceedingly  slow,  and  the 
general  tendency  of  humanity  to  maintain  rather  small  numbers 
showed  no  striking  change. 

3.  During  the  century  from  1800  to  1900  the  hindrances  to  the 
increase  of  human  beings,  in  general  the  same  as  those  established  by 
nature  to  limit  the  increase  of  other  living  creatures,  were  largely 
overcome  by  civilized  man;   and  in  addition  entirely  new  industrial 
conditions  developed  which    offered    means  of  support  for  many 
millions  of  people. 

4.  In  consequence  the  number  of  human  beings  on  the  globe 
increased  to  an  extraordinary  degree,  and  at  the  close  of  the  nine- 
teenth century  the  population  of  the  world  exceeded  a  billion  and 
a  half. 

5.  Principally,  under  the  influence  of  industrial  activity,  mankind 
has  tended  more  and  more  to  concentrate  in  large  cities. 

But  if  a  variety  of  causes  have  contributed  to  invite  very  large 
human  increase  in  a  comparatively  brief  period,  does  it  also  follow 
that  these  influences  will  never  spend  themselves,  and  that  a  liberal 
increase  of  world-population  will  continue  indefinitely  ?  An  affirma- 
tive answer  to  this  question  does  not  appear  to  be  reasonable.  If,  for 
example,  the  increase  of  world-population  should  continue  at  the 
nineteenth-century  rate,  five  hundred  years  later,  in  2400,  the  world 
would  be  supporting  thirteen  and  one  half  billions  of  human  beings. 

It  must  be  remembered  that  as  increase  of  population  progresses 
the  mere  fact  of  increase  creates  new  conditions.  These  in  turn  may 
check  or  destroy  earlier  tendencies.  Thus  out  of  the  great  increase 
in  population  in  our  time  has  come  already  at  least  one  significant  fact. 
This  may  be  termed  "  the  pressure  of  population."  It  is  the  general, 
instinctive,  realization  of  large  numhers.  Expression  of  this  realiza- 
tion appears  in  the  decreasing  belief  that  personal  responsibility  rests 
on  the  individual  to  rear  a  large  family,  or  even,  in  many  cases,  to 
become  a  parent.  Mere  numbers — the  pressure  of  humanity  on  all 

1  By  William  S.  Rossiter.  Adapted  from  "The  Pressure  of  Population," 
Atlantic  Monthly,  CVIII  (1911),  838-43.  Copyright  by  the  Riverside  Press. 

ED.  NOTE. — William  S.  Rossiter  (1861 — )  is  an  American  publisher  and  author 
whose  works  include  two  volumes  on  population  statistics. 


l8  ECONOMICS  OF  WAR 

sides,  especially  in  the  large  cities — constitute  ever-present  evidence 
to  the  average  man  and  woman  that  there  are  people  enough  and  that 
the  struggle  for  existence  is  too  severe  already  to  be  increased  by 
unnecessary  burdens.  In  consequence  there  has  arisen  a  rather 
remarkable  and  widespread  tendency,  now  clearly  evident  in  most 
of  the  large  communities  of  Europe,  voluntarily  to  limit  the  family. 
The  effect  of  this  tendency  is  most  marked  in  France,  where  it  has 
produced  a  present  state  of  equilibrium  of  population  liable  to  be 
changed  at  any  time  into  a  positive  national  decrease.  Limitation 
of  family  has  also  appeared  in  other  parts  of  the  world,  and  has 
caused  much  concern  in  Australia,  where  a  very  small  total  white 
population  is  shown.  It  should  not  be  overlooked,  however,  in  con- 
nection with  the  apparently  exceptional  problem  presented  by 
Australia,  that  the  southern  Continent  seems  never  to  have  sustained 
a  large  population.  The  aborigines  of  Australia,  New  Zealand, 
and  Tasmania  were  not  numerous,  and  those  that  remain  are 
dying  out  so  rapidly  as  to  suggest  a  very  frail  racial  grasp  upon 
existence. 

In  the  United  States  the  conditions  have  tended  more  and  more 
to  approximate  those  of  Europe.  From  the  pioneer  stage  which 
prevailed  when  Malthus  called  attention  to  the  phenomenal  fertility 
of  many  American  communities  the  nation  has  advanced  so  far  and 
with  such  rapidity  that  the  change  constitutes  one  of  the  marvels  of 
the  age.  By  a  sort  of  forced  draught,  secured  with  the  assistance  of 
all  Europe,  the  United  States  has  attained  an  eigh teen-fold  increase 
in  population  in  one  hundred  years.  The  national  policy  during 
this  era  of  feverish  development  may  be  summed  up  as  a  continuous 
and  successful  attempt  to  compress  the  normal  national  growth  of  a 
long  period  into  a  few  decades. 

In  consequence  of  a  century  of  such  increase  of  numbers,  accom- 
panied by  an  ever-increasing  congestion  in  urban  centers,  it  is  not 
strange  that  in  the  United  States  also  has  appeared  the  modern 
tendency  to  limit  the  family.  It  has  become  so  general,  indeed,  in 
many  sections  that  the  effect  upon  the  states  and  the  nation  in  all 
probability  would  be  more  evident  even  than  it  is  in  France  if  it  were 
not  concealed  by  immigration.  Substantially  all  the  national  increase 
is  now  contributed  by  the  later  stock,  by  persons  born  in  other 
countries  and  by  their  children. 

The  conditions  and  practice  here  alluded  to  have  been  aggressively 
and  very  justly  assailed  as  being  destructive  to  domestic  happiness, 


ECONOMIC  BACKGROUND  OF  WAR  19 

character-building,  and  national  stability.  To  these  assertions  there 
can  be  no  effective  reply. 

The  large  family  has  been  and  is  one  of  the  principal  sources  of  the 
finer  elements  of  American  character.  The  United  States  is  what  it 
is  today  because  of  large  families.  Their  decrease  should  be  a  cause 
of  much  concern.  It  is  useless,  however,  to  ignore  world-tendencies. 
If,  in  response  to  a  conscientious  conviction  that  larger  families  were 
proper  and  necessary  for  the  welfare  of  the  nation,  the  American 
people  should  increase  the  proportion  of  children  to  that  which 
prevailed  in  1790,  there  would  be  added  nearly  16,000,000  to  the  total 
population.  The  continuation  of  this  rate  of  increase  added  to  the 
present  actual  increase  (derived  largely  from  external  sources)  would 
advance  the  population  of  the  United  States  by  leaps  and  bounds. 
Without  radical  change  in  the  wants  and  consumption  of  each  individ- 
ual— in  other  words,  without  an  economic  revolution — such  increase 
obviously  could  not  long  continue. 

But  if,  as  thus  suggested,  the  race  is  now  becoming  obedient  to 
new  population  influences,  whither  do  they  lead  us  ?  In  the  past  the 
crude  limitations  of  population  incidentally  tended  to  strengthen  the 
character  and  increase  the  endeavor  of  those  who  survived.  In  this 
age,  by  wonderful  invention  and  achievement,  we  have  directly 
stimulated  increase  in  numbers;  but  if  in  so  doing  we  have  brought 
into  operation  new  forces  or  influences  which  in  turn  war  insidiously 
against  further  pronounced  increase,  we  may  have  entailed  much 
ultimate  injury  upon  society  by  affecting  one  of  the  main  sources  of 
human  strength  and  progress.  When  individuals  of  both  sexes, 
oppressed  by  the  density  of  population  on  all  sides  and  convinced 
that  the  race  is  increasing  without  their  aid,  or  that  it  already  is  too 
numerous  without  increase,  feel  themselves  absolved  from  the  per- 
formance of  the  supreme  natural  function,  society  is  confronted  with 
a  problem  of  the  gravest  importance.  The  avoidance  of  having 
children  has  become  already  so  general  that  the  man  of  intelligence 
and  influence  who  rears  a  large  family  is  now  both  exceptional  and 
courageous.  Thus  the  age-old  instinct,  for  the  quickening  of  which 
far-sighted  statesmen  in  this  and  other  countries  are  pleading,  seems 
to  have  been  dulled.  The  energy  which  under  the  old  conditions 
was  devoted  to  the  rearing  of  children  is  now  largely  turned  in 
other  directions.  It  seldom  benefits  the  state  and  society,  but  is 
generally  expended  upon  some  form,  however  innocent,  of  self- 
gratification. 


20  ECONOMICS  OF  WAR 

If  the  large  family  is  the  most  wholesome  state  for  society,  then 
its  decline  must  be  a  distinct  loss.  Moreover  this  loss  comes  at  a 
period  of  time  when  more  and  better  men  are  needed  than  in  any 
previous  period.  Never  before  has  the  race  been  called  upon  to 
administer  and  increase  such  a  vast  accumulation  of  knowledge  or 
to  deal  with  such  a  complexity  in  the  social  order. 

These  considerations  suggest  that  perhaps  the  human  race,  in 
its  magnificent  endeavor  in  this  age,  has  in  reality  overreached  itself 
and  sown  the  seeds  of  decay.  It  is  possible  to  imagine  stationary,  and 
then  decreasing,  population  as  becoming  at  length  world-wide,  and 
finally  a  distinct  downward  movement  of  the  race,  as  though  humanity 
were  burnt  out  by  overexcitement,  wealth,  and  excess.  Mankind  is 
no  longer  young;  is  the  race  to  be  always  virile  ? 

3.    A  STATIONARY  POPULATION  AND  PROSPERITY1 

In  the  United  States  we  have  seen  that  the  workingman  is  already 
being  compelled  to  take  smaller  wages,  measured  in  terms  of  food, 
than  he  received  a  few  years  ago.  The  pressure  upon  food  has  begun 
to  be  felt  in  this  country,  where  conditions  have  been  very  good  until 
the  last  few  years.  Is  this  also  the  case  with  the  European  countries  ? 
For  the  United  Kingdom  we  can  answer  this  question  definitely. 
Wages  will  purchase  about  8.0  per  cent  less  food  in  1910  than  in 
1900.  The  decrease  is  not  quite  so  large  as  in  the  United  States,  but 
it  is  more  significant,  because  the  English  laborer  was  nearer  the  sub- 
sistence level  in  1900  than  the  American  laborer.  That  the  pressure 
is  being  felt  in  the  United  Kingdom  is  also  attested  by  the  fact  that 
immigration  was  much  larger  in  the  decade  1900-1910  than  in  the 
previous  decade.  There  can  be  no  doubt  that  the  British  laborer  is 
being  affected  by  the  fact  that  a  larger  and  larger  proportion  of  his 
food  comes  from  foreign  lands  and  is  increasingly  difficult  to  obtain. 

In  France  we  find  that  the  situation  is  not  so  serious  as  in  these 
other  countries.  Prices  have  increased  in  the  last  decade,  but  not 
as  much  as  in  the  United  States  and  Germany,  and  just  about  the 
same  as  in  the  United  Kingdom.  Wages  have  increased  faster  than 
prices  for  most  of  this  decade.  Thus  it  is  evident  that  the  situation 

1  By  Warren  S.  Thompson.  Adapted  from  .Columbia  University  Studies  in 
Political  Science,  Vol.  LXIII,  No.  3,  Population:  A  Study  in  Malthusianism, 
pp.  156-64.  Copyright  by  Warren  S.  Thompson,  1915. 

ED.  NOTE. — Mr.  Thompson  is  a  member  of  the  department  of  sociology  at 
the  University  of  Michigan. 


ECONOMIC  BACKGROUND  OF  WAR  21 

of  the  French  workingman  is  better  today  than  it  has  been  in  the  past. 
As  far  as  our  data  permit  of  generalization  we  can  say  that  France 
is  the  only  country  in  which  wages  have  kept  ahead  of  prices  since 
1900.  What  are  the  differences  between  France  and  these  other 
countries  which  will  account  for  this  relatively  better  situation  of  the 
French  workingman? 

In  addition  to  the  restriction  of  population,  the  fact  that  a  larger 
proportion  of  the  population  of  France  than  of  most  of  the  great 
industrial  countries  is  engaged  in  agriculture  will  help  to  account  for 
the  state  of  general  well-being  among  the  masses  of  the  French  people. 
France  has  not  attempted  to  compete  for  industrial  and  commercial 
supremacy  and  therefore  has  avoided  the  costs  of  this  competition. 
It  is  only  within  a  few  years  that  these  costs  have  come  to  be  felt 
keenly  in  the  United  States  and  Germany;  they  have  been  felt  for  a 
longer  time  in  Great  Britain. 

Because  population  is  about  stationary  and  because  living  condi- 
tions are  relatively  good  many  of  the  French  economists  view  the 
position  of  France  with  great  apprehension.  The  reasons  for  this 
apprehension  are  not  far  to  seek.  In  the  first  place,  they  fear  that 
immigration  of  peoples  with  lower  standards  of  living  from  surround- 
ing countries  will  take  place  on  a  large  scale,  and  that  these  immigrants 
will  multiply  so  rapidly  that  they  will  denationalize  the  French.  In 
the  second  place,  they  fear  that  the  nations  to  the  east  of  them  will 
soon  be  able  to  conquer  them  because  their  populations  are  increasing 
so  rapidly. 

Another  conclusion  which  seems  to  me  to  be  warranted  is  that 
population  cannot  continue  to  increase  at  its  present  rate  without 
being  more  and  more  subjected  to  the  actual  want  of  food,  provided 
the  distribution  of  labor  between  agriculture  and  the  non-agricultural 
industries  continues  in  its  present  trend  (the  trend  found  in  the  more 
highly  developed  'countries).  Nor  can  a  greater  and  greater  propor- 
tion of  the  population  be  devoted  to  agriculture  and  the  present  rate 
of  increase  continue  without  checking  a  progressive  standard  of  living. 
The  non-agricultural  industries  are  not  yielding  increasing  returns  in 
such  ratio  that  they  can  furnish  the  necessary  material  means  for  a 
progressive  standard  to  such  a  rapidly  increasing  population.  Thus, 
whatever  the  direction  of  development,  a  progressive  standard  of 
life  and  a  population  increasing  from  1.5  per  cent  to  2.0  per 
cent  a  year  cannot  go  on  together  for  long  in  a  large  part  of  the 
world. 


22  ECONOMICS  OF  WAR 

III.     Economic  Imperialism 
i.    A  SUMMARY  VIEW  OF  MACHTPOLITIK* 

War  is  a  biological  necessity  of  the  first  importance,  a  regulative 
element  in  the  life  of  mankind  which  cannot  be  dispensed  with,  since 
without  it  an  unhealthy  development  will  follow  which  excludes  every 
advancement  of  the  race  and  therefore  all  real  civilization. 

The  nation  is  made  up  of  individuals,  the  state  of  communities. 
The  motive  which  influences  each  member  is  prominent  in  the  whole 
body.  It  is  a  persistent  struggle  for  possessions,  power,  and  sover- 
eignty which  primarily  governs  the  relations  of  one  nation  to  another, 
and  right  is  respected  so  far  only  as  it  is  compatible  with  advantage. 
So  long  as  there  are  men  who  have  human  feelings  and  aspirations,  so 
long  as  there  are  nations  who  strive  for  an  enlarged  sphere  of  activity, 
so  long  will  conflicting  interests  come  into  being  and  occasions  for 
making  war  arise. 

The  natural  law,  to  which  all  laws  of  nature  can  be  reduced,  is  the 
law  of  struggle.  All  intra-social  property,  all  thoughts,  inventions, 
and  institutions,  as  indeed  the  social  system  itself,  are  a  result  of  the 
intra-social  struggle,  in  which  one  survives  and  another  is  cast  out. 
The  extra-social,  the  super-social,  struggle  which  guides  the  external 
development  of 'societies,  nations,  and  races,  is  war. 

That  social  system  in  which  the  most  efficient  personalities  possess 
the  greatest  influence  will  show  the  greatest  vitality  in  the  intra- 
social  struggle.  In  the  extra-social  struggle,  in  war,  that  nation  will 
conquer  which  can  throw  into  the  scale  the  greatest  physical,  mental, 
moral,  material,  and  political  power  and  is  therefore  the  best  able  to 
defend  itself.  War  will  furnish  such  a  nation  with  favourable  vital 
conditions,  enlarged  possibilities  of  expansion,  and  widened  influence, 
and  thus  promote  the  progress  of  mankind;  for  it  is  clear  that  those 
intellectual  and  moral  factors  which  insure  superiority  in  war  are  also 
those  which  render  possible  a  general  progressive  development.  They 
confer  victory  because  the  elements  of  progress  are  latent  in  them. 
Without  war  inferior  or  decaying  races  would  easily  choke  the  growth 
of  healthy,  budding  elements,  and  a  universal  decadence  would  follow. 

1  By  F.  von  Bernhardi.  Adapted  from  Germany  and  the  Nexi  War,  pp.  18-108. 
Published  by  Longmans,  Green  &  Co.,  1914. 

ED.  NOTE. — General  von  Bernhardi  (1849 — )  is  an  authority  on  cavalry 
tactics,  and  the  book  from  which  this  extract  is  made  is  an  attempt  to  arouse 
German  opinion  to  the  most  extreme  militarist  point  of  view. 


ECONOMIC  BACKGROUND  OF  WAR  23 

Strong,  healthy,  and  flourishing  nations  increase  in  population. 
From  a  given  moment  they  require  a  continual  expansion  of  their 
frontiers;  they  require  new  territory  for  the  accommodation  of  their 
surplus  population.  Since  almost  every  part  of  the  globe  is  inhabited, 
new  territory  must,  as  a  rule,  be  obtained  at  the  cost  of  its  possessors — 
that  is  to  say,  by  conquest,  which  thus  becomes  a  law  of  necessity. 

In  America,  England,  and  Germany,  to  mention  only  the  chief 
commercial  countries,  industries  offer  remunerative  work  to  great 
masses  of  the  population.  The  native  population  cannot  consume  all 
the  products  of  this  work.  The  industries  depend,  therefore,  mainly 
on  exportation.  Work  and  employment  are  secured  so  long  as  they 
find  markets  which  gladly  accept  their  products,  since  they  are  paid 
for  by  the  foreign  country.  But  this  foreign  country  is  intensely 
interested  in  liberating  itself  from  such  tribute  and  in  producing  itself 
all  that  it  requires.  We  find,  therefore,  a  general  endeavor  to  call 
home  industries  into  existence  and  to  protect  them  by  tariff  barriers; 
and  on  the  other  hand  the  foreign  country  tries  to  keep  the  markets 
open  to  itself,  to  crush  or  cripple  competing  industries,  and  thus  to 
retain  the  consumers  for  itself  or  win  fresh  ones.  It  is  an  embittered 
struggle  which  rages  in  the  markets  of  the  world.  It  has  already  often 
assumed  definite  hostile  forms  in  tariff  wars,  and  the  future  will 
certainly  intensify  this  struggle.  Great  commercial  countries  will,  on 
the  one  hand,  shut  their  doors  more  closely  to  outsiders,  and  countries 
hitherto  on  the  downgrade  will  develop  home  industries,  which,  under 
more  favorable  conditions  of  labour  and  production,  will  be  able  to 
supply  goods  cheaper  than  those  imported  from  the  old  industrial 
states.  These  latter  will  see  their  position  in  the  world-markets 
endangered,  and  thus  it  may  well  happen  that  an  export  country 
can  no  longer  offer  satisfactory  conditions  of  life  to  its  workers.  Such 
a  state  runs  the  danger,  not  only  of  losing  a  valuable  part  of  its 
population  by  emigration,  but  also  of  gradually  falling  from  its 
supremacy  in  the  civilized  and  political  world  through  diminishing 
production  and  lessened  profits. 

In  this  respect  we  stand  to-day  at  the  threshold  of  a  develop- 
ment. We  cannot  reject  the  possibility  that  a  state,  under  the 
necessity  of  providing  remunerative  work  for  its  population,  may 
be  driven  into  war. 

Under  these  conditions  the  position  of  Germany  is  extraordinarily 
difficult.  We  not  only  require  for  the  full  material  development  of 
our  nation,  on  a  scale  corresponding  to  its  intellectual  importance, 


24  ECONOMICS  OF  WAR 

an  extended  political  basis,  but,  as  has  just  been  explained,  we  are 
compelled  to  obtain  space  for  our  increasing  population  and  markets 
for  our  growing  industries.  But  at  every  step  which  we  take  in 
this  direction  England  will  resolutely  oppose  us.  English  policy 
may  not  yet  have  made  the  definite  decision  to  attack  us;  but  it 
doubtless  wishes,  by  all  and  every  means,  even  the  most  extreme,  to 
hinder  every  further  expansion  of  German  international  influence 
and  of  German  maritime  power. 

Since  the  struggle  is,  as  appears  on  a  thorough  investigation  of  the 
international  question,  necessary  and  inevitable,  we  must  fight  it  out, 
cost  what  it  may.  Indeed,  we  are  carrying  it  on  at  the  present 
moment,  though  not  with  drawn  swords,  and  only  by  peaceful  means 
so  far.  On  the  one  hand,  it  is  being  waged  by  the  competition  in 
trade,  industries,  and  warlike  preparations;  on  the  other  hand,  by 
diplomatic  methods  with  which  the  rival  states  are  fighting  each  other 
in  every  region  where  their  interests  clash.  With  these  methods  it 
has  been  possible  to  maintain  peace  hitherto,  but  not  without  con- 
siderable loss  of  power  and  prestige.  This  apparently  peaceful  state 
of  things  must  not  deceive  us;  we  are  facing  a  hidden,  but  none  the 
less  formidable,  crisis — perhaps  the  most  momentous  crisis  in  the 
history  of  the  German  nation.  We  have  fought  in  the  last  great 
wars  for  our  national  union  and  our  position  among  the  Powers  of 
Europe;  we  now  must  decide  whether  we  wish  to  develop  into  and 
maintain  a  World  Empire  and  procure  for  German  spirit  and  German 
ideas  that  fit  recognition  which  has  been  hitherto  withheld  from  them. 
Have  we  the  energy  to  aspire  to  that  great  goal  ?  Are  we  prepared 
to  make  the  sacrifices  which  such  an  effort  will  doubtless  cost  us? 
Or  are  we  willing  to  recoil  before  the  hostile  forces  and  sink  step  by 
step  lower  in  our  economic,  political,  and  national  importance? 
That  is  what  is  involved  in  our  decision. 

There  is  no  standing  still  in  the  world's  history.  All  is  growth  and 
development.  We  must  make  it  quite  clear  to  ourselves  that  there 
can  be  no  standing  still,  no  being  satisfied,  for  us,  but  only  progress  or 
retrogression,  and  that  it  is  tantamount  to  retrogression  when  we  are 
contented  with  our  present  place  among  the  nations  of  Europe  while 
all  our  rivals  are  straining  with  desperate  energy,  even  at  the  cost  of 
our  rights,  to  extend  their  power.  The  process  of  our  decay  would 
set  in  gradually  and  advance  slowly  so  long  as  the  struggle  against  us 
was  waged  with  peaceful  weapons;  the  living  generation  would 
perhaps  be  able  to  continue  to  exist  in  peace  and  comfort.  But 


ECONOMIC  BACKGROUND  OF  WAR  25 

should  a  war  be  forced  upon  us  by  stronger  enemies  under  conditions 
unfavourable  to  us,  then,  if  our  arms  met  with  disaster,  our  political 
downfall  would  not  be  delayed  and  we  should  rapidly  sink  down. 
The  future  of  German  nationality  would  be  sacrificed,  an  independent 
German  civilization  would  not  long  exist,  and  the  blessings  for  which 
German  blood  has  flowed  in  streams — spiritual  and  moral  liberty 
and  the  profound  and  lofty  aspirations  of  German  thought — would 
for  long  ages  be  lost  to  mankind. 

If,  as  is  right,  we  do  not  wish  to  assume  the  responsibility  for  such 
a  catastrophe  we  must  have  the  courage  to  strive  with  every  means  to 
attain  that  increase  of  power  which  we  are  entitled  to  claim,  even  at 
the  risk  of  a  war  with  numerically  superior  foes. 

We  must  employ  means  also  for  the  widening  of  our  colonial 
territory,  so  that  it  may  be  able  to  receive  the  overflow  of  our  popula- 
tion. Very  recent  events  have  shown  that  under  certain  circum- 
stances it  is  possible  to  obtain  districts  in  equatorial  Africa  by  pacific 
negotiations.  If  necessary  they  must  be  obtained  as  the  result  of  a 
successful  European  war.  In  all  these  possible  acquisitions  of  ter- 
ritory the  point  must  be  strictly  borne  in  mind  that  we  require 
countries  which  are  climatically  suited  to  German  settlers.  Now 
there  are,  even  in  Central  Africa,  large  regions  which  are  adapted  to 
the  settlement  of  German  farmers  and  stock-breeders,  and  part  of 
our  overflow  population  might  be  diverted  to.  those  parts.  But, 
generally  speaking,  we  can  only  obtain  in  tropical  colonies  markets 
for  our  industrial  products  and  wide  stretches  of  cultivated  ground 
for  the  growth  of  the  raw  materials  which  our  industries  require. 
This  represents  in  itself  a  considerable  advantage,  but  does  not 
release  us  from  the  obligation  to  acquire  land  for  actual  colonization. 

A  part  of  our  surplus  population  indeed — so  far  as  present  con- 
ditions point — will  always  be  driven  to  seek  a  livelihood  outside  the 
borders  of  the  German  Empire.  Measures  must  be  taken  to  the  extent 
at  least  of  providing  that  the  German  element  is  not  split  up  in  the 
world,  but  remains  united  in  compact  blocks  and  thus  forms,  even  in 
foreign  countries,  political  centres  of  gravity  in  our  favour,  markets 
for  our  exports,  and  centres  for  the  diffusion  of  German  culture. 

An  intensive  colonial  policy  is  for  us  especially  an  absolute 
necessity.  It  has  often  been  asserted  that  a  "policy  of  the  open  door" 
can  replace  the  want  of  colonies  of  our  own  and  must  constitute  our 
programme  for  the  future  just  because  we  do  not  possess  sufficient 
colonies.  This  notion  is  justified  only  in  a  certain  sense.  In  the 


26  ECONOMICS  OF  WAR 

first  place,  such  a  policy  does  not  off er  the  possibility  of  finding  homes 
for  the  overflow  population  in  a  territory  of  our  own ;  next,  it  does  not 
guarantee  the  certainty  of  an  open  and  unrestricted  trade  competi- 
tion. It  secures  to  all  trading  nations  equal  tariffs,  but  this  does  not 
imply  by  any  means  competition  under  equal  conditions.  On  the 
contrary,  the  political  power  which  is  exercised  in  such  a  country  is 
the  determining  factor  in  the  economic  relations.  The  principle  of 
the  open  door  prevails  everywhere — in  Egypt,  in  Manchuria,  in  the 
Congo  State,  in  Morocco — and  everywhere  the  politically  dominant 
power  controls  the  commerce:  in  Manchuria,  Japan;  in  Egypt, 
England;  in  the  Congo  State,  Belgium;  and  in  Morocco,  France. 
The  reason  is  plain.  All  state  concessions  fall  naturally  to  that  state 
which  is  practically  dominant;  its  products  are  bought  by  all  the 
consumers  who  are  in  any  way  dependent  on  the  power  of  the  state, 
quite  apart  from  the  fact  that  by  reduced  tariffs  and  similar  advan- 
tages for  the  favoured  wares  the  concession  of  the  open  door  can  be 
evaded  in  various  ways.  A  "policy  of  open  door"  must  at  best  be 
regarded  as  a  makeshift  and  as  a  complement  of  a  vigorous  colonial 
policy.  The  essential  point  is  for  a  country  to  have  colonies  of  its 
own  and  a  predominant  political  influence  in  the  spheres  where  its 
markets  lie.  Our  German  world-policy  must  be  guided  by  these 
considerations. 

2.     INDUSTRIAL  PENETRATION1 

Certain  thinkers  tell  us:  "It  is  not  true  that  economic  causes 
played  a  preponderant  part  in  the  explosion  of  last  July.  Germany 
was  not  threatened  by  overpopulation,  she  had  no  urgent  need  of 
colonies."  But  the  truth  is,  that  what  counts  in  the  history  of 
humanity  is  not  the  actual  facts  but  the  form  in  which  men  picture 
them  to  their  minds.  Political  economy  and  history  are  in  their 
essence  psychological  sciences.  What  we  are  concerned  to  know  is 
not  whether  Germany  was  actually  suffocating;  Germany  thought 
she  was  suffocating,  she  yielded — to  use  the  very  words  of  one  of 
those  who  contradict  us — to  the  haunting  fear  of  aggressive  "encircle- 

1  By  Henri  Hauser.  Adapted  from  "Economic  Germany,"  a  lecture  given 
on  April  10,  1915.  Printed  by  Thomas  Nelson  &  Sons,  1915. 

ED.  NOTE. — Henri  Hauser  (1866 — )  is  professor  of  modern  history  and  geog- 
raphy at  the  University  of  Clermont  and  author  of  numerous  works,  including  a 
study  of  American  imperialism. 


ECONOMIC  BACKGROUND  OF  WAR  27 

ment,"  which  she  felt  bound  to  shatter  at  all  costs.  It  is  this  "patho- 
logical phenomenon  of  collective  psychology"  which  we  must  attempt 
to  explain. 

I.      THE   EVOLUTION   OF   GERMAN   INDUSTRY 

What  strikes  us  at  the  very  outset  in  the  evolution  of  German 
industry  is  the  actual  greatness  of  the  phenomenon.  There  is  some- 
thing impressive  in  the  spectacle  of  this  people,  which  forty  years  ago 
scarcely  counted  at  all  in  economic  geography,  and  yet  had  become 
on  the  eve  of  the  war  one  of  the  great  forces  of  the  world.  With  her 
900  to  1,000  millions  of  foreign  commerce  Germany  reckoned  in  the 
second  rank  of  mercantile  nations,  after  England.  Outstripping 
England  herself  she  had  achieved  the  second  place  in  the  smelting  and 
production  of  iron  and  the  second  also  in  the  manufacture  of  steel. 
Her  mercantile  marine,  inferior  to  ours  [the  French]  in  1870,  was  in 
1913  surpassed  only  by  those  of  England  and  the  United  States. 

All  this  won  our  admiration We  do  not  hesitate  to  recog- 
nize that  the  German  people,  since  the  foundation  of  the  Empire,  have 
given  proof  of  remarkable  qualities.  First  and  foremost  they  have 
worked  with  intense  energy,  not  with  the  feverish  excitement  which 
raises  mountains  in  a  few  days,  but  with  persistent  and  patient  every- 
day labour,  regular  and  methodical.  Ostwald  is  right  when  he  attrib- 
utes to  the  Germans  the  faculty  and  genius  for  organization.  They 
have  carried  to  perfection  the  art  of  making  use  of  men,  of  putting 
every  man  in  his  place,  and  of  getting  the  maximum  of  output  from 
each  individual.  If  the  genius  for  great  discoveries  seems  in  recent 
times  to  have  deserted  Germany,  the  Germans  are  past  masters  in  the 
application  of  the  discoveries  of  science  to  industry.  The  statement 
has  often  enough  been  made :  It  is  the  union  of  the  laboratory  and  the 
workshop  which  is  the  foundation  of  German  wealth.  This  truth 
was  emphasized  in  1897  by  M.  Raphael- Georges  Levy.  In  an 
article  in  the  Revue  des  deux  mondes,  which  was  a  revelation  to  many 
Frenchmen,  he  wrote: 

The  sphere  in  which  science  wins  its  triumphs  is  that  of  industry.  It 
is  difficult  to  find  a  more  striking  demonstration  of  this  truth  than  that 
furnished  by  the  chemical  industry  of  Germany.  That  industry  came  from 
the  laboratories  of  great  men  of  science,  such  as  Liebig  and  Hoffman,  and 
its  continued  prosperity  is  due  to  the  incessant  co-operation  of  hundreds 

of  chemists  who  come  every  year  from  the  Universities Germany  is 

covered  with  laboratories,  several  of  which  have  cost  £25,000,  and  the 
yearly  upkeep  of  which  requires  hundreds  of  thousands. 


28  ECONOMICS  OF  WAR 

Side  by  side  with  the  union  between  laboratory  and  workshop  it 
is  necessary  to  call  attention  to  the  union  between  the  office  of 
the  business  director  and  the  library  of  the  economist,  the  geo- 
grapher and  the  historian.  For  the  method  which  the  Germans 
applied  to  the  production  of  a  new  aniline  colour  they  also  carried 
into  their  search  for  commercial  outlets  and  their  organization  of 
channels  of  commerce.  The  German  chemist  and  the  German  com- 
mercial traveller  marched  in  step  to  the  conquest  of  the  globe. 

This  rise  of  Germany  was  a  great  and,  we  are  prepared  to  say,  in  a 
certain  sense  a  fine  spectacle;  but  its  very  rapidity  contained  an 
element  which  gave  some  ground  for  anxiety. 

The  evolution  of  Germany  has  borne  a  startling  and  almost 
catastrophic  character.  From  the  complex  of  agricultural  states, 
dotted  with  industrial  patches,  which  constituted  the  Zollverein  in 
1870,  the  industrial  Empire  has  sprung  up  in  a  few  years  by  a  sort  of 
historical  "right-about-face,"  without  any  of  that  slow  and  secular 
preparation  which  marked  the  rise,  for  instance,  of  the  English  power. 

Time  has  had  no  share  in  producing  industrial  Germany In 

1895  the  income  from  the  fortunes  of  the  Empire  was  estimated  at  21 
milliards;  in  1913  the  estimate  varied  from  40  to  50  milliards,  while 
the  wealth  of  Germany  was  estimated  at  320  milliards,  of  which 
nearly  9.5  consisted  of  deposits  in  banks  and  18  in  savings  banks. 
Such  are  the  figures  proudly  produced  by  Dr.  Helfferich,  director  of 
the  Deutsche  Bank,  the  present  minister  of  finance  of  the  King  of 
Prussia,  at  the  twenty-fifth  anniversary  of  the  accession  of  William  II. 

This  sudden  increase  in  German  wealth  had  very  serious  conse- 
quences for  the  character  and  distribution  of  the  population  of 
Germany.  The  two  most  notable  results  were  the  progressive  dis- 
appearance of  the  rural  population  and  the  abrupt  cessation  of 
emigration.  It  is  repeatedly  stated  that  the  Germans  were  forced 
into  a  policy  of  expansion  and  conquest  by  the  increase  of  their 
population.  This  was  indeed  the  excuse  they  put  forward  to  justify 
their  attempts  to  create  colonies  of  settlement  in  Morocco  and  Asia 
Minor.  A  pitiless  Malthusian  law  had  forced  them,  it  was  said,  to 
find  for  themselves  a  "place  in  the  sun."  Now  there  could  be  no  idea 
more  false  than  this  of  Germany  as  an  overpopulated  country.  It  is 
quite  true  that  since  1871  the  population  of  the  Empire  has  increased 
from  40  to  nearly  70  millions.  It  is  quite  true  that  in  spite  of  a  decline 
in  the  birth-rate  the  increase  in  the  population  of  Germany  was 
800,000  a  year:  that  is,  800,000  more  births  than  deaths,  800,000 


ECONOMIC  BACKGROUND  OF  WAR  29 

more  mouths  to  feed.  But  this  increase  was  far  from  being  excessive, 
for  every  year  700,000  Slav  labourers  came  in  to  work  on  the  great 
estates  of  the  East,  not  to  mention  the  Italian,  Croatian,  Polish,  etc., 
labour  employed  in  towns,  mines,  and  works. 

As  for  German  emigration  it  is  no  longer  more  than  a  memory. 
Between  1880  and  1883  it  exceeded  200,000  a  year;  to-day  it  does  not 
reach  20,000,  very  much  the  same  figure  as  our  own,  and  the  French 
are  regarded  as  a  people  who  emigrate  very  little.  The  number  of 
arrivals  far  exceeds  that  of  departures.  Germany  has  ceased  to  be  a 
country  of  emigration  and  is  becoming  a  country  of  immigration. 

Out  of  67  million  Germans  scarcely  17  millions  are  agricultural 
or  live  on  agriculture.  Every  year  an  enormous  number  of  peasants 
quit  the  land  and  rush  into  colossal  factories.  Germany  has  definitely 
passed  from  the  type  of  the  agricultural  state  to  that  of  the  industrial 
state,  from  the  Agrarstaat  to  the  Industriestaat.  The  equilibrium 
between  the  land  and  the  workshop  has  been  upset. 

II.      THE   INDUSTRIAL   STATE   AND   ITS   NEEDS 

The  industrial  state  has  very  imperious  needs  and  requirements 
which  are  not  shared  by  the  agricultural  state;  the  agricultural  state 
lives  on  itself  and  for  itself  and  can  live  within  its  own  limits.  The 
industrial  state,  to  use  the  phrase  of  Lamprecht,  is  a  "tentacular" 
state. 

To  begin  with,  it  has  need  of  supplies  of  food.  It  is  calculated 
that  20  millions  of  the  67  millions  of  Germany  depend  for  their 
maintenance  on  foreign  harvests  and  foreign  cattle.  A  dangerous 
position,  since  it  compels  Germany  to  secure  for  herself  at  all  times 
not  only  free  passage  over  her  land  frontiers,  but,  above  all,  freedom 
of  communication  by  sea.  We  know  what  it  costs  Germany  to-day 
to  be  cut  off  from  receiving  the  wheat  of  Russia,  America,  and 
Argentina. 

The  industrial  state  is  in  pressing  need  not  only  of  capital  but  of 
raw  material.  Germany,  when  she  entered  the  lists,  was  regarded 
as  a  country  rich  in  coal  and  iron.  She  has  remained  rich  in  coal, 
but  by  working  her  iron  mines  intensively  I  do  not  say  she  has 
exhausted  them,  but  she  can  no  longer  extract  from  them  the  total 
amount  of  ore  required  by  her  metallurgical  works.  Krupp  is  more 
and  more  dependent  on  Sweden,  Spain,  North  Africa,  and  France. 
In  the  same  way  the  spinning  and  weaving  factories  of  Saxony  and 
Silesia  are  dependent  on  Texas  and  Louisiana.  If  Sweden,  which  has 


30  ECONOMICS  OF  WAR 

nationalised  her  mines,  puts  barriers  on  the  export  of  her  ores,  or  the 
price  of  corn  undergoes  an  abnormal  rise  in  the  market  of  New  Orleans, 
it  means  famine  for  the  crowds  which  throng  into  the  Westphalia 
district  or  to  the  north  of  the  Bohemian  mountains. 

Raw  cotton  bulks  larger  than  any  other  article  imported  into 
Germany,  to  the  amount  of  considerably  more  than  £25,000,000. 
The  cotton  industry  employs  more  than  i|  millions  of  work-people 
and  manufactures  goods  to  the  value  of  more  than  £50,000,000. 
Now  two-thirds  of  the  raw  cotton  consumed  in  the  world  is  supplied 
by  a  single  country,  the  United  States.  In  1894  a  syndicate,  the 
"Sully  cotton  corner,"  took  advantage  of  this  situation  to  produce 
an  enormous  rise  of  prices  and  to  reserve  the  cotton  for  the  American 
factories.  On  the  Bremen  exchange,  in  February,  the  price  paid  for 
cotton  was  85  pfennige  a  pound,  while  in  December,  when  the  corner 
had  been  broken  up,  it  fell  to  35.  Germany  lost  in  the  operation 
£5,850,000  paid  to  the  foreigner.  A  reduction  in  the  production  of 
cotton  textiles  and  widespread  dismissal  of  workmen  were  the  results 
of  this  veritable  cotton  famine,  which  at  the  same  time  disastrously 
affected  our  own  industries  in  the  Vosges  and  in  Normandy  as  well 
as  those  of  Lancashire. 

Customers  are  necessary  to  Germany  even  more  than  capital. 
In  spite  of  their  power  of  increase,  in  spite  of  their  rapid  advance  in 
wealth,  in  spite  of  their  appetite  for  enjoyment,  the  German  people 
cannot  by  themselves  alone  absorb  the  enormous  output  of  the 
German  factories.  They  are  bound  to  turn  more  and  more  to  the 
outside  world  and  to  become  an  exporting  nation. 

All  causes  then  combine  to  make  Germany  a  tentacular  state 
spreading  out  in  every  direction  over  the  world.  The  general  staff 
of  the  industrial  world  needs  a  "world-policy"  to  find  interest  for  its 
capital  and  to  pay  the  wage  of  its  workmen.  The  proletariat  have 
need  of  it  to  give  them  a  full  day's  work  and  save  them  from  starvation. 
That  is  why  German  Socialism  is  imperialist.  Even  as  early  as  1900 
the  defenders  of  the  Naval  Law  wrote:  "The  freedom  of  the  seas  and 
vigorous  competition  in  the  markets  of  the  world  are  therefore 
questions  of  life  and  death  for  the  nation,  questions  in  which  the 
working  classes  are  most  deeply  interested."  Only  yesterday  the 
Social  Democrat  Konrad  Hoenisch,  ex-member  of  the  Reichstag, 
exclaimed,  "The  social  interests  of  the  German  proletariat  even 
more  than  political  considerations  make  victory  for  Germany 
necessary." 


ECONOMIC  BACKGROUND  OF  WAR  31 

III.      INDUSTRY   AND   WORLD-POLICY   ("  WELTPOLITIK ") 

Thus  we  see  the  industrial  state  condemned  to  world-policy. 
Its  first  business  is  to  find  means  to  develop  its  policy  of  exports. 
The  first  means  adopted  is  the  system  of  bounties.  As  German 
industry  is  working  less  for  the  home  market  than  for  foreign  markets 
it  is  logical  to  sell  cheap,  sometimes  even  to  sell  at  a  loss,  beyond  the 
frontier  in  order  to  win  new  markets  and  to  discourage  all  competition. 
Thanks  to  the  system  by  which  the  chief  economic  forces  are  grouped 
in  cartels,  the  process  is  easy  enough.  In  1902  the  coke  syndicate 
compelled  the  German  consumer  to  pay  155.  a  ton,  while  at  the  same 
time  it  agreed  to  sell  large  quantities  abroad  at  us.  In  the  second 
half  of  1900  the  iron-wire  syndicate  had  sold  abroad  at  145.  per  100 
kg.,  while  the  home  price  was  255.  It  thus  made  a  minus  profit  on 
the  foreign  market,  that  is,  a  loss  of  £42,950,  and  on  the  home  market 
a  profit  of  £58,850.  This  gave  a  balance  on  the  right  side.  But  this 
time  the  trick  was  overdone,  for  the  result  was  that  German  iron  was 
bought  up  abroad  to  be  re-exported  to  Germany  at  a  profit.  Next  to 
the  system  of  bounties  comes  that  of  treaties  of  commerce,  which 
favour  the  importation  of  provisions  and  of  labourers  (Slavs,  for 
example),  and  which  secure  a  moderate  tariff  for  German  goods 
abroad.  Such  is  the  basis  of  the  Russo-German  Treaty  of  1904,  the 
tendency  of  which  was  to  make  Russia  an  economic  colony  of 
Germany. 

In  order  to  meet  the  want  of  iron,  Germany  had  to  conquer  new 
supplies  of  iron  ore.  Peaceful  conquest  to  begin  with.  The  expert 
adviser  attached  to  the  commissioners  of  delimitation  in  1871  allowed 
the  iron-ore  strata  of  the  Woevre  to  escape,  from  ignorance  of  their 
real  importance,  and  also  because  he  thought  them  inaccessible  by 
reason  of  their  depth,  unworkable  because  of  their  high  percentage  of 
phosphorus.  But  the  application  of  the  Thomas  process  in  1878 
converted  the  Briey  Basin  into  the  most  important  iron  field  at  present 
being  worked  in  the  world.  With  the  iron  of  Lorraine  and  Normandy 
and  the  coal  of  Westphalia,  Germany  would  be  the  mistress  of  the 
world.  To  make  sure  of  this  supremacy  it  was  of  importance  to 
remove  all  competition  ,and  establish  German  industry  in  the  very 
heart  of  the  country  of  her  rivals.  A  description  was  given  before  the 
war  of  the  extraordinary  control  acquired  by  German  manufacturers 
over  French  works  producing  chemical  materials,  electricity,  etc.  At 
Neuville-sur-Saone  it  was  the  Badische  Sodafabrik  which,  under  a 
French  name,  provided  the  madder  dye  for  the  red  trousers  of  the 


32  ECONOMICS  OF  WAR 

French  army.  The  Parisian  Aniline  Dye  Company  was  nothing  but 
a  branch  of  Meister,  Lucius  and  Bruning,  of  Hoechst.  We  have  been 
told  how  a  Darmstadt  company  for  producing  pharmaceutical  goods 
came  and  established  a  branch  at  Montereau  in  order  to  destroy  a 
French  factory  which  was  there  before,  and  how  the  General  Electric 
Company  got  hold  of  Rouen,  Nantes,  Algiers,  Oran,  and  Chateauroux. 

The  same  conquests  were  won  at  Seville,  Granada,  Buenos  Aires, 
Montevideo,  Mendoza,  Santiago,  and  Valparaiso,  while  the  other 
great  electric  company  of  Germany,  the  Siemens-Schuckert,  estab- 
lished itself  at  Creil.  Turkey,  Russia,  Italy,  and  Switzerland 
shared  the  fate  of  France.  "The  money  of  the  Swiss  debenture 
holder  serves  to  support  German  undertakings  competing  with 
Swiss  manufacturers  in  our  own  country." 

A  remarkable  study  of  the  same  subject  in  Italy  has  beeri  made  by 
M.  Giovanni  Preziosi  in  some  articles  which  appeared  in  1914  under 
the  significant  title,  Germany 's  Plan  for  the  Conquest  of  Italy.  It  was 
indeed  a  war  of  conquest  conducted  with  admirable  organizing  faculty. 
At  its  centre  was  a  financial  staff  constituted  by  the  "Banca  com- 
mercialle  ....  italiana,"  which  naturally  is  called  "Italian"  just 
as  the  companies  in  France  are  called  "French"  or  "Parisian."  This 
product  of  German  finance  is  described  as  a  "Germanic  octopus," 
the  very  image  of  the  tentacular  state  before  described.  Establishing 
itself  within  the  directing'boards  and,  by  means  of  a  system  of  secret 
cards,  employing  a  regular  system  of  commercial  espionage  to  ruin 
all  who  resist  it,  it  succeeded  in  gradually  absorbing  the  economic 
energies  of  an  entire  people — establishments  of  credit,  shipping  com- 
panies, manufacturing  firms;  it  was  even  able  to  corrupt  political 
life,  overthrow  ministries,  and  control  elections.  Here,  as  in  Switzer- 
land, the  pseudo-Italian  German  banks  "act  as  a  pump  which  pumps 
out  of  Italy  and  pumps  into  Germany."  Italy,  which  is  considered 
a  poor  country,  provides  capital  for  rich  Germany. 

IV.      THE  PAST  PLAYED   BY  THE    STATE 

To  back  up  this  policy  of  economic  conquest  the  prestige  and  the 
strength  of  the  Empire  must  be  put  at  the  service  of  the  manufacturers. 
To  make  the  state,  as  the  Germans  understand  it,  the  instrument  of 
German  expansion — this  is  the  meaning  of  what  the  Germans  have 
well  named  the  policy  of  "business  and  power"  (Handels-  und  Macht- 
politik). 

This  fusion  of  Weltpolitik  and  business  policy  was  peculiarly 
dangerous  for  the  peace  of  the  world.  If  imperialism,  if  the  tentacular 


ECONOMIC  BACKGROUND  OF  WAR  33 

state,  puts  its  strength  at  the  disposal  of  manufacturing  interests,  the 
temptation  is  strong  and  constant  to  use  this  strength  to  break  down 
any  resistance  which  stands  in  the  way  of  the  triumph  of  these  inter- 
ests. If  a  crisis  comes  which  causes  a  stoppage  of  work  (there  are 
sometimes  100,000  unemployed  in  Berlin),  the  neighboring  nation 
which  may  be  held  responsible  for  the  crisis  has  reason  to  be  on  its 
guard.  "  Be  my  customer  or  I  kill  you  "  seems  to  be  the  motto  of  this 
industrial  system  continually  revolving  in  its  diabolical  circle:  always 
producing  more  in  order  to  sell  more,  always  selling  more  in  order  to 
meet  the  necessities  of  a  production  always  growing  more  intensive. 

Russia  is  for  Germany  both  a  reservoir  of  labour  .and  a  market. 
Should  Russia  in  1917  refuse  to  renew  the  disastrous  treaty  forced 
upon  her  in  the  unlucky  days  of  the  Japanese  war,  should  she  put  an 
end  to  the  system  of  passports  for  agricultural  labourers,  what  would 
become  of  German  capitalist  agriculture,  which  has  been  more  and 
more  industrialized  and  is  more  and  more  in  the  hands  of  the  banks: 
the  farming  of  the  great  estates  of  Brandenburg,  Pomerania,  and 
Prussia  ? 

France  is  for  Germany  a  bank  and  a  purveyor  of  minerals.  What 
a  temptation  to  dip  deep  into  the  jealously  guarded  stocking  and  fill 
both  hands!  What  a  temptation  too  to  repair  the  blunder  made  in 
the  delimitation  of  1871!  Even  in  1911  the  Gazette  du  Rhin  et  de 
Westphalie  put  forward  the  view  that  the  iron  ores  of  Lorraine  and 
Luxembourg  ought  to  be  under  the  same  control  as  those  of  West- 
phalia and  the  Saar.  And  I  am  told  that  the  great  journals  of  Paris, 
when  informed  of  this  campaign,  refused  to  take  this  "provincial 
journal"  seriously,  being  blind  to  the  fact  that  it  was  the  organ  of 
.the  great  manufacturers  of  the  Rhineland  and  of  the  Prussian  staff. 
What  a  temptation  again  to  take  the  port  of  Cherbourg  in  the  rear 
from  Dielette! 

As  for  England,  the  direct  competitor  of  Germany  in  all  the 
markets  of  the  world  and  manufacturing  the  same  goods,  she  is  the 
enemy  to  be  crushed.  Has  she  not  acquired  the  habit,  and  has 
she  not  taught  it  to  France,  of  refusing  to  lend  money  to  poor  states 
except  in  return  for  good  orders?  The  time  is  beginning  to  go  by 
when  it  was  possible  to  do  German  business  in  Turkey  with  French  or 
English  gold.  Germany's  rivals  have  learnt  from  her  the  lesson  of 
Handels-  und  Machtpolitik.  But  what  is  to  become  of  Essen,  Gelsen- 
kirchen,  and  all  that  immense  industrial  city  of  which  Westphalia 
consists,  if  Rumanians,  Greeks,  Serbians,  order  their  guns  and  their 
ironclads,  their  rails,  or  their  locomotives  at  Glasgow  or  at  Le  Creusot  ? 


34  ECONOMICS  OF  WAR 

Germany  thought  war  preferable  to  this  economic  encirclement,  and 
the  velvet  glove  gave  place  to  the  mailed  gauntlet. 

Little  by  little  the  idea  of  war  as  necessary,  of  war  as  almost  a 
thing  to  wish  for,  laid  hold  on  the  industrial  classes.  The  proof  is 
to  be  found  as  early  as  1908  in  a  popular  book  by  Professor  Paul 
Arndt — one  of  those  small  shilling  books  which  served  to  instruct  the 
German  mind.  All  of  us,  even  the  best  informed,  must  reproach 
ourselves  for  not  having  studied  or  studied  closely  enough  these  small 
books  which  would  have  made  the  danger  clear  to  us.  In  this  volume 
the  author,  after  a  paean  to  German  greatness,  begins  a  chapter  "  On 
the  Dangers  of  Germany's  Participation  in  World-Wide  Trade." 
He  shows  that  this  participation  increases  Germany's  dependence  on 
the  foreigner  and  makes  her  vulnerable  by  sea  as  well  as  by  land.  If 
international  relations  are  disturbed  there  will  be  "many  workmen 
without  food  and  much  depreciation  of  capital,"  and  that  from  causes 
"in  great  measure  beyond  the  control  of  Germany"  in  countries 
which  may  seize  the  opportunity  to  weaken  Germany.  And  in  a 
hypothesis  which  is  prophetic  he  describes  the  effects  of  the  blockade. 

But  he  accepts  without  hesitation  these  risks  of  the  world-policy. 
"No  doubt,  if  we  wish  to  be  and  to  remain  a  great  people,  a  world- 
power,  we  expose  ourselves  to  serious  struggles.  But  this  must  not 
alarm  us.  There  is  profound  truth  in  the  dictum  that  man  degener- 
ates in  peace  time.  The  call  to  arms  is  often  needed  to  rouse  a  world 
benumbed  with  apathy  and  indolence.  Those  who  can  look  far  and 
deeply  into  things  see  that  warfare  is  often  a  blessing  to  humanity." 

I  have  shown  that  the  over-rapid  industrialisation  of  Germany 
has  led  by  a  mechanical  and  fatal  process  to  the  German  war.  If  any 
doubt  were  felt  on  the  part  played  by  economic  causes  in  this  war,  it 
would  be  enough  to  look  at  the  picture  of  German  victory  as  imagined 
by  the  Germans  in  their  dreams  during  the  last  seven  months.  It  is 
an  industrial  victory,  9.  forced  marriage  between  German  coal  and 
foreign  iron,  the  reduction  of  nations  into  vassals  who  are  to  play  the 
part  of  perpetual  customers  of  the  German  workshops. 

3.  THE  THEORY  OF  THE  WHITE  MAN'S  BURDEN1 

Many  assume  that  trade  follows  the  flag,  that  dominion  is  worth 
while  because  it  stimulates  trade.  But  such  is  not  the  actual  course 

1  By  Abbott  Payson  Usher.  Adapted  from  "England's  Place  in  the  Sun," 
Unpopular  Review,  VI  (July-December,  1916),  313-21.  Copyright  by  Henry 
Holt  &  Co.,  New  York. 

ED.  NOTE. — Mr.  Usher  is  a  member  of  the  department  of  political  economy 
at  Cornell  University. 


ECONOMIC  BACKGROUND  OF  WAR  3*5 

of  empire.  The  place  in  the  sun  was  not  deliberately  chosen  by 
statesmen,  appropriated,  and  then  opened  to  the  trader.  England's 
empire  is  the  result  rather  than  the  cause  of  her  industrial  and  com- 
mercial expansion.  Sovereignty  has  been  acquired  and  protectorates 
declared  when  commercial  contact  has  created  legal  and  social  diffi- 
culties that  could  best  be  solved  through  an  assumption  of  power. 
Few  colonies,  least  of  all  tropical  colonies,  are  actually  sources  of  net 
profit.  Even  if  the  gains  of  the  traders  are  large,  the  administrative 
expenditure,  in  most  cases,  exceeds  any  possible  income.  Since  the 
American  Revolution  the  reluctance  of  the  English  government  to 
accept  colonial  responsibilities  has  been  largely  due  to  the  keen 
realization  of  the  cost.  When  adventurers  in  India  or  Africa  thought 
only  of  the  "glorious"  imperial  future,  the  secretaries  of  state  in 
England  thought  of  the  burden  that  must  be  incurred  for  administra- 
tion and  defense.  "„'. 

It  is  not  difficult  to  realize  the  need  of  European  control  in  regions 
whose  inhabitants  have  not  progressed  beyond  the  looser  forms  of 
tribal  government.  The  need  of  control  in  tropical  countries  which 
possess  organized  governments  is  not  so  clear.  There  is  much  to 
suggest  that  it  is  a  work  of  supererogation.  The  natives  do  not 
always  accept  the  foreign  authority  with  acquiescence,  and  the 
subjection  of  an  entire  people  possessing  an  organized  government  is 
apparently  inconsistent  with  the  principles  of  international  law  as 
applied  in  Europe.  Until  the  present  war,  at  least,  we  had  come  to 
feel  that  national  existence  was  guaranteed  even  to  the  small  states. 
The  difference  of  principle  with  reference  to  tropical  countries  must 
needs  be  admitted.  It  is  in  part  an  outcome  of  the  medieval  distinc- 
tion between  Christian  and  non-Christian  states.  Throughout  the 
period  of  the  expansion  of  commerce  in  the  East  Indies  this  funda- 
mental assumption  dominated  political  thought.  The  rights  of 
native  rulers  were  recognized  after  a  fashion,  but  they  were  not  placed 
upon  a  par  with  the  rights  of  Christian  nations.  The  forms  of  nego- 
tiation and  treaty-making  were  observed,  but  the  substance  of  treaties 
with  these  native  rulers  was  different,  usually  involving  the  grant  by 
them  of  privileges  which  would  never  be  granted  by  any  European 
country.  Such  a  distinction  would  hardly  arise  to-day  on  these  same 
grounds,  but  there  are  racial  and  cultural  reasons  for  treating  these 
non-Christians  in  a  different  manner.  Contact  with  Europeans 
almost  of  necessity  involved  some  grant  to  them  of  sovereign  powers, 
because  the  European  traders  could  not  be  subjected  to  native  law. 


36  ECONOMICS  OF  WAR 

In  Europe  and  the  Americas  there  is  sufficient  similarity  of  social 
organization  to  make  it  possible  to  adopt  the  idea  that  every  individual 
must  recognize  the  law  of  the  state  within  which  he  is  resident.  In 
India  and  Northern  Africa  this  theory  cannot  be  applied.  As  in  the 
days  of  the  Germanic  invasions  of  the  Roman  Empire,  each  race  must 
be  governed  by  its  own  laws.  Contact  with  Europeans  thus  involved 
the  establishment  of  an  imperium  in  imperio.  By  a  process  of  purely 
spontaneous  growth  the  European  jurisdiction  has  ultimately  absorbed 
all  the  functions  of  government,  administering  European  laws  for 
Europeans  and  native  laws  for  natives. 

Because  the  goods  of  the  East  India  Company  could  not  properly 
enter  into  the  local  trade  of  India,  the  native  princes  had  granted 
almost  complete  exemption  from  customs.  The  officials  of  the  Com- 
pany bought  goods  on  their  own  account,  passed  them  by  the  customs 
barriers  as  goods  of  the  Company,  and  then  offered  them  for  sale  in 
the  local  markets  at  prices  far  below  any  figure  that  could  be  set  by  a 
native  trader  who  had  paid  heavy  duties.  It  will  be  evident  that  the 
law  could  be  enforced  against  the  officials  of  the  Company  only  by 
some  English  authority,  though  the  chief  offense  was  committed 
against  the  laws  of  the  native  state.  The  inevitable  complexities  of 
this  dual  jurisdiction  could  not  be  successfully  met  by  officials  accus- 
tomed to  the  laxity  and  corruption  common  in  all  oriental  states. 
The  maintenance  of  any  substantial  government  required  courts  and 
administrative  officials  inspired  by  the  highest  ideals  of  honor  and 
capable  of  exercising  effective  control  over  Europeans.  It  may  well 
be  that  the  English  have  made  many  mistakes  in  India,  but  there  is 
evidence  in  plenty  to  show  that  the  native  prince^  could  not  have 
carried  on  any  organized  government  in  the  face  of  the  difficulties 
created  by  commercial  contact  with  Europe. 

The  acquisition  of  dominion  is  most  evidently  justified  when  rights 
are  assumed  by  Europeans  only  as  a  necessary  result  of  long- 
established  commercial  contact.  English  power  has  developed  in  such 
a  manner,  slowly,  and  under  evident  pressure  of  circumstances. 
England  has  frequently  avoided  assumption  of  sovereignty  and 
undertaken  merely  to  direct  the  foreign  policy  of  the  native  state. 
This  slow  growth  toward  dominion  has  been  due  to  the  absence  of 
rivalries  among  European  nations  and  to  physical  and  economic 
obstacles  that  made  it  impossible  rapidly  to  develop  extensive  com- 
merce with  the  remote  interior  of  the  lands  open  to  European  influence. 
Within  fifty  years  the  underlying  conditions  of  economic  expansion 


ECONOMIC  BACKGROUND  OF  WAR  37 

have  changed.  The  industries  of  Europe  have  developed  so  rapidly 
that  new  markets  are  now  eagerly  sought.  The  development  of  large 
steam  freighters  has  so  lowered  rates  that  distant  markets  are  open 
to  many  types  of  merchandise  whose  shipment  was  formerly  restricted 
by  cost  of  carriage.  It  has  become  possible  to  construct  railroads 
without  undue  expenditure,  even  in  the  most  remote  regions,  so  that 
the  volume  of  trade  with  the  interior  districts  can  expand  without 
encountering  serious  physical  obstacles.  The  only  limit  to  expansion 
is  the  purchasing  power  of  the  population,  and  as  this  is  frequently 
diminished  by  oppressive  taxation  or  civil  disorder,  there  is  an  added 
motive  to  make  an  end  of  native  misrule. 

In  Africa,  even  if  Continental  Europe  had  remained  relatively 
indifferent  to  commercial  expansion,  the  changed  conditions  of  contact 
between  Europeans  and  natives  would  have  led  to  the  rapid  extension 
of  European  dominion.  The  so-called  "partition"  of  Africa  is  no 
doubt  largely  a  result  of  these  new  economic  conditions.  But  neither 
France  nor  Germany  has  been  indifferent.  Their  ambitions  have 
created  keen  political  rivalries.  The  economic  basis  of  expansion 
can  easily  be  misunderstood,  and  the  incidental  character  of  acquisi- 
tion of  dominion  is  obscured.  There  seems  to  be  a  lust  for  power, 
sometimes  as  an  end  in  itself,  sometimes  as  a  means  to  commercial 
development.  The  boundaries  of  spheres  of  influence  become  a 
perennial  source  of  political  tension,  and  intrigue  to  secure  favored 
positions  creates  an  atmosphere  of  suspicion.  Northern  Africa  and 
the  Persian  Gulf  have  thus  become  important  regions  in  world- 
politics.  Economic  interests  have  been  obscured  by  the  struggle  for 
power,  which  can  be  compared  only  to  the  struggles  of  the  Dutch, 
French,  and  English  in  the  East  Indies.  At  such  times  political 
power  seems  the  fundamental  basis  of  commercial  development,  but 
the  history  of  the  English  colonies  points  unmistakably  to  the  opposite 
conclusion.  Neither  in  the  Spice  Islands  nor  in  India  did  England 
display  much  capacity  in  intrigue  or  in  imperial  politics.  Her  ulti- 
mate successes  were  largely  due  to  the  staying  powers  derived  from 
the  economic  strength  of  the  English  East  India  Company. 

German  colonial  policy  has  been  different  in  principle.  The 
acquisition  of  dominion,  or  of  political  privileges  just  short  of  actual 
dominion,  has  preceded  economic  development.  German  imperialism 
is  thus  attempting  to  create  an  imperial  domain  by  means  which  have 
never  as  yet  been  successfully  employed.  In  Northern  Africa,  in 
Turkey,  and  on  the  Persian  Gulf,  Germany  is  seeking  to  secure  a 


38  ECONOMICS  OF  WAR 

"place  in  the  sun,"  not  because  her  trade  naturally  carries  her  to  such 
markets,  but  because  dominion  over  tropical  lands  is  presumed  to  be 
valuable  in  and  of  itself — a  means  to  commercial  expansion  and  a 
present  evidence  of  power.  In  each  region  Germany  is  discovered  to 
have  "economic  interests,"  actual  or  contingent. 

In  Morocco,  German  interests  were  most  substantial,  and  the 
entire  situation  is  undoubtedly  complex.  In  Turkey,  German  com- 
merce could  hardly  have  created  any  necessity  for  the  thorough 
penetration  of  German  influence  in  the  government  that  was  revealed 
by  the  present  war.  The  Bagdad  Railway  was,  of  course,  in  form 
an  economic  enterprise,  but  the  details  of  the  scheme  suggest  that  the 
most  immediate  purposes  in  view  were  military.  The  great  wheat 
fields  of  the  foothills  north  of  the  Syrian  desert  were  not  touched  by 
the  railway,  because  it  was  cheaper  to  build  the  line  across  the  desert, 
and  the  Turkish  government  had  guaranteed  interest  payments  on 
the  investment.  Similarly  in  Mesopotamia  the  line  is  located  where 
it  will  be  of  least  immediate  economic  advantage.  The  military 
value  of  the  main  line  is  of  course  unimpaired  by  these  details  of 
location.  One  might  argue  too  that  the  great  energy  displayed  in 
building  the  line  towards  the  Egyptian  border  by  way  of  Jerusalem 
was  indicative  of  military  rather  than  economic  aims. 

The  economic  interests  of  Germany  in  the  Near  East  are  so 
largely  prospective  that  it  requires  much  imagination  to  appreciate 
the  iniquity  of  England's  alleged  conspiracy  to  "throttle  German 
commerce."  One  is  reminded  of  the  famous  occasion  in  the  Irish 
Parliament  before  the  Union,  when  an  enthusiastic  orator  charged 
Great  Britain  with  the  "murder  of  ten  thousand  children  that  have 
never  been  born." 

To  German  statesmen,  however,  these  ulterior  economic  purposes 
are  definite  enough,  and  those  statesmen's  conceptions  of  the  economic 
significance  of  the  Near  East  are  comprehensible  enough  in  the  light 
of  current  events.  Once  connection  with  Turkey  is  assured  through 
Balkan  alliances,  the  great  league  of  Central  Empires  would  have  at 
their  command  such  varied  resources  that  there  could  be  little  possi- 
bility of  injuring  them  by  maritime  blockade.  They  would  not  only 
separate  Russia  from  her  European  Allies,  but  would  have  at  their 
command  the  products  of  every  climate  in  substantial  abundance. 
The  general  character  of  the  entire  plan  is  now  evident,  but  it  is  also 
clear  that  the  development  of  Turkey's  economic  resources  is  still  a 
project  to  be  realized  only  in  a  distant  future. 


ECONOMIC  BACKGROUND  OF  WAR  39 

4.    A  BRITISH  VIEW  OF  MESOPOTAMIA1 

MESOPOTAMIA — ITS  FUTURE  PROSPECTS 

Germany  claims  to  be  credited  with  the  greatest  discovery  of 
modern  times.  One  of  her  newspapers  declared  that  "the  year  1492, 
when  America  was  discovered,  and  1916,  when  the  colossal  idea  of 
the  new  road  to  India  was  born,  are  dates  which  generations  to  come 
will  regard  as  co-equal  and  epoch-making."  It  is  probably  true  that 
the  reopening  of  this  old  highway  will  prove  to  be  of  equal  importance 
to  the  world  as  the  discovery  of  America  by  Columbus;  but  the 
credit  of  the  so-called  discovery  belongs  to  Great  Britian,  who  pub- 
lished plans  for  the  opening  up  of  the  Euphrates  Valley  before  unified 
Germany  was  born. 

It  is  common  knowledge  that  in  1851  we  held  concessions  for  the 
Euphrates  Valley  Railway.  The  time,  however,  was  not  ripe  for  the 
development  of  this  important  route,  for  the  retrograde  Ottoman 
Empire  blocked  the  way.  We  did  our  utmost  to  introduce  reforms 
into  Turkey,  hoping  that  she  would  fall  into  line  with  European 
standards  and  co-operate  with  civilised  nations  in  the  development 
of  an  important  area  of  the  earth's  surface.  Germany's  evil  counsels, 
however,  have  tended  to  frustrate  our  efforts  to  secure  the  reform  of 
Turkish  administration,  and  with  the  aid  of  her  Bagdad  Railway 
schemes  Germany  made  a  deliberate  attempt  to  establish  in  the  most 
strategic  centre  of  the  earth  a  formidable  coalition  of  irresponsible 
despotic  monarchies  from  the  banks  of  the  Elbe  to  the  banks  of  the 
Indus.  In  spite  of  her  attempts  to  wreck  modern  civilisation  the 
world  still  will  be  able  to  make  a  rapid  recovery  on  one  essential 
condition — that  the  new  highways  from  West  to  East  shall  be  kept 
free  from  the  influence  of  despotisms  that  defy  the  rights  of  humanity 
and  ignore  the  fundamental  principles  of  our  twentieth-century  civ- 
ilisation. 

If  the  Turks  are  permitted  to  govern  anybody  but  themselves,  if 
they  continue  to  command  the  world's  important  highways,  then 
humanity  will  suffer  and  military  despotism  may  once  more  regain 
the  ascendant.  The  maintenance  of  peace  in  the  East,  as  well  as 
the  progress  of  Western  peoples,  depends  mainly  upon  the  permanent 
expulsion  of  the  Turk  from  the  world's  highways  and  the  grant  of  a 
charter  of  freedom  for  the  dwellers  in  Mesopotamia. 

1  By  Canon  Parfit.  Adapted  from  Mesopotamia — The  Key  to  the  Future, 
pp.  28-41.  Copyright  by  Hodder  &  Stoughton,  1917. 


40  ECONOMICS  OF  WAR 

Since  the  outbreak  of  war  the  Germans  have  completed  a  new 
line  of  railway  through  Palestine  to  the  Egyptian  frontier,  and  we 
also  have  constructed  a  railway  across  the  Sinai  tic  Desert  to  Palestine. 
There  is  no  doubt,  therefore,  that  the  Cape-to-Cairo  Railway  will  soon 
be  connected  with  the  great  European  and  Asiatic  systems  by  a  line 
running  through  Palestine  to  Aleppo.  Then  the  old  "Silk  Street" 
route  from  Pekin  to  the  Mediterranean  will  doubtless  be  covered  more 
or  less  with  a  railway  system;  and  we  may  consequently  anticipate 
the  joining  up  of  rapid  communications  over  these  many  ancient 
highways,  in  practically  a  straight  line  from  London  to  India  and 
Australia,  from  Paris  to  Pekin,  and  from  Petrograd  to  the  Cape.  All 
these  will  pass  through  Aleppo,  now  the  headquarters  of  Germany's 
Bagdad  Railway  schemes,  which  makes  it  a  matter  of  vital  interest 
and  concern  to  the  millions  of  the  British  Empire  that  Germany's 
attempts  to  destroy  our  shipping  coincide  with  her  effort  to  grasp  by 
force  of  arms  the  most  important  lines  of  overland  communications. 
It  must  not  be  forgotten  that  these  direct  overland  routes  will  assume 
still  greater  importance  with  the  establishment  of  aviation  stations. 
We  are  making  wondrous  strides  in  aerial  navigation,  and  when  recent 
inventions  are  diverted  to  peaceful  purposes,  it  will  be  possible,  we 
are  told,  to  send  mails  and  passengers  from  London  to  India  in  three 
days  by  aerial  navigation  in  practically  a  straight  line.  Lord  Montagu 
suggested  a  route  across  Russia  to  the  Punjab,  but  it  is  more  probable 
that  aviation  stations  will  be  established  across  the  continent  of 
Europe  and  down  the  Euphrates  Valley.  If  the  journey  will  take 
but  three  days  from  London  to  India,  with  plenty  of  time  for  rest  and 
sleep  on  the  way,  may  it  not  soon  be  possible  for  our  colonial  repre- 
sentatives of  the  contemplated  imperial  parliament  to  come  within  a 
week  from  the  shores  of  Australia  to  the  portals  of  Westminster? 
These  tremendous  changes  which  are  now  taking  place  amongst 
civilised  peoples  make  it  certain  that  the  central  portion  of  the  Eastern 
Hemisphere,  which  forms  a  natural  connecting  link  between  the  three 
continents  of  Europe,  Asia,  and  Africa,  will  undoubtedly  become  one 
of  the  most  important  portions  of  the  earth's  surface.  These  changes 
will  facilitate  the  opening  up  of  enormous  countries  hitherto  largely 
closed  to  modern  commercial  enterprise  or  exploited  only  by  a  few 
adventurous  Europeans.  The  vast  populations  of  Asia  and  Africa 
will  be  able  to  play  a  better  part  in  the  development  of  the  continents 
and  the  progress  of  humanity.  There  is  plenty  of  room  for  every- 
body; and  what  a  difference  it  may  make  to  Europe,  with  the 


ECONOMIC  BACKGROUND  OF  WAR  41 

new  facilities  afforded  to  emigration  and  colonisation,  when  the 
Antipodes  can  be  brought  so  near  to  the  congested  areas  of  European 
lands! 

5.     IMMEDIATE  ANTECEDENTS  IN  THE  NEAR  EAST1 

We  have  in  the  Near  East  two  main  lines  of  politico-economic 
development,  both  antecedent  in  origin  to  the  Balkan  wars  of  1912-13, 
but  both  greatly  accelerated  by  their  result.  One  is  the  gradual 
subordination  of  Turkish  nationality  to  European— and  principally 
German — economic  enterprise;  the  other  is  the  effort  of  the  Triple 
Agreement  to  encircle  and  neutralize  the  German  economic  sphere 
by  joining  up  their  competitive  spheres  and  heading  it  off  from 
further  expansion  eastward,  with  Franco-Russian  railway  schemes 
cutting  across  it  near  its  western  end  and  Anglo-Russian  railway 
projects  in  Persia  blocking  its  eastern  end.  The  question  which  the 
Balkan  wars  have  brought  within'sight  is  whether  the  Bagdad  railway 
and  the  economic  development  it  imports  will  assure  to  Germany 
such  control  of  Asia  Minor  as  was  secured  over  Manchuria  by  the 
Russian  railway,  or  whether  this  economic  control  will  be  so  countered 
and  crossed  by  national  "democratic"  movements  and  international 
"diplomatic"  moves  that  it  will  lead  to  no  more  than  did  the  similar 
economic  control  over  the  Balkan  Peninsula  secured  a  half-century 
ago  by  Austria  in  the  construction  of  the  Oriental  Railway  to  Con- 
stantinople. Austria  has  had  to  allow  Anglo-Russian  support  of 
Balkan  nationality  movements  to  expel  Austrian  economic  penetra- 
tion finally2  from  the  Balkan  Peninsula  in  this  recent  War  of  Coalition. 
Will  Germany  be  in  a  similar  situation  in  Asia  Minor,  say  a  century 
hence,  and  be  suffering  similar  expulsion  before  an  Armenian-Turkish- 
Arab  coalition  ? 

It  was  the  eagerness  of  the  capitalists  and  concessionaires  in  the 
great  lending  Powers  to  exploit  the  situation  created  by  the  war  that 
confused  and  falsified  the  lines  on  which  the  belligerents  might  other- 
wise have  worked  out  a  more  permanent  peace.  It  was  the  "dip- 
lomatic" interventions  of  imperialist  interests,  either  military  or 

1  By  George  Young.     Adapted  from  Nationalism  and  War  in  the  Near  East, 
pp.  334  ff.     Carnegie  Endowment  for  International  Peace. 

ED.  NOTE. — George  Young,  M.V.O.  (1872 — ),  was  in  the  British  diplomatic 
service  or  in  positions  of  kindred  character  from  1896  to  1915  and  has  served 
at  Athens,  Constantinople,  and  Belgrade. 

2  This  was  written  before  the  present  world-war. — ED. 


42  ECONOMICS  OF  WAR 

monetary,  that  displaced  or  diverted  the  "democratic"  influences 
that  were  directing  the  course  of  events  into  an  equitable  equilibrium. 
The  cost  of  these  interventions  has  in  some  cases  equaled  that  of  war, 
and  their  economic  and  political  effects  have  been  no  less  striking 
than  if  war  had  been  declared.  To  choose  two  only  as  examples: 
it  was  Austrian  military  opposition  that  drove  Serbia  out  of  Scutari 
and  into  Monastir,  and  it  was  French  monetary  support  that  brought 
Turkey  back  into  Thrace.  The  economic  effect  on  the  Austrian 
Empire  of  the  mobilization  required  for  this  purpose  was  more 
disastrous  than  the  effect  of  active  participation  in  the  wars  on  any 
of  the  Allies.  The  Austrian  budget  estimated  the  cost  of  this  mobili- 
zation at  16,500,000  pounds,  or  about  what  it  cost  Greece  to  double 
its  territory  and  population,  while  the  loss  to  the  national  economy  of 
the  financial  crisis  through  which  Vienna  passed  as  a  consequence  of 
this  intervention  can  only  be  guessed  at.  The  list  of  bankruptcies 
alone  shows  that  a  war  scare  and  a  financial  stringency  may  be 
more  economically  expensive  to  a  modern  capital  than  a  six 
months'  campaign,  ending  with  an  invasion,  to  such  a  primitive 
community  as  Bulgaria.  Then,  taking  the  case  of  France,  we 
find  the  Balkan  commitments  of  Paris  contributing  to  a  financial 
crisis  there  which  is  none  the  less  severe  for  having  been  success- 
fully survived,  but  which  by  the  time  it  is  liquidated  will  probably 
have  caused  as  heavy  a  drain  on  French  thrift  as  a  campaign  on 
Morocco. 

The  amount  of  material  and  mental  capital  now  invested  in  the 
manufacture  and  marketing  of  armaments  makes  this  interest  one 
of  the  most  powerful  political  influences  in  the  world.  Though  the 
business  is  even  more  international  in  character  than  most  of  the  great 
industries  of  the  world,  unlike  them  it  depends  for  its  profits,  like  any 
other  insurance  business,  on  the  prospect  of  warlike  disturbance  and 
not  on  the  promise  of  peaceful  development.  Therefore,  unlike  other 
industries,  it  is  found  in  international  relations  associating  with  the 
militarist  faction  and  always  ready  to  use  its  very  considerable  con- 
trol of  parties  and  of  the  press  in  order  to  exploit  the  alarmist  and 
chauvinist  possibilities  of  any  new  political  development.  It  does 
not  indeed  seem  probable  that  without  the  alarmist  agitation 
fomented  by  armament  interests  and  militarist  influences  the  politi- 
cal changes  in  the  Balkan  Peninsula  would  have  caused  the  general 
augmentation  of  armaments  in  Europe  that  followed  the  Balkan 
wars. 


ECONOMIC  BACKGROUND  OF  WAR  43 

IV.     Commercial  Rivalry  and  Special  Interests 
i.    DIMINISHING  CAUSES  OF  HOSTILITY1 

Alongside  of  the  optimistic  view  that  increasing  foreign  trade  is  a 
force  making  for  world-peace,  we  must  place  the  pessimistic  view  that 
all  modern  wars  are  essentially  commercial,  and  that  war  is,  in  fact, 
an  inevitable  concomitant  of  trade  expansion.  The  latter  view 
appears,  indeed,  to  have  the  better  support  from  history. 

If  we  wish  to  understand  the  relation  between  foreign  commerce 
and  war,  we  must  inquire  first  of  all  whether  we  are  justified  in  treating 
commerce  purely  in  quantitative  terms.  Foreign  trade  manifests 
a  wide  variety,  both  in  the  objects  that  enter  into  it  and  in  the  cir- 
cumstances under  which  it  is  conducted.  In  either  respect  it  under- 
goes marked  changes  from  generation  to  generation — changes  that  a 
purely  quantitative  study  does  not  reveal.  And  even  a  very  super- 
ficial examination  of  international  relations  indicates  that  it  is  the 
character  rather  than  the  quantity  of  trade  that  bears  upon  the 
question  of  war  or  peace.  England  and  Germany  compete  in  the  ex- 
port of  textiles  to  the  United  States;  the  trade  is  an  important  one, 
yet  it  is  never  enumerated  among  the  causes  of  the  alleged  hostility 
existing  between  the  two  nations.  Both  countries  are  competitors 
in  the  purchase  of  American  cotton,  but  this  competition  excites  no 
international  animosity  whatever.  For  a  number  of  years  Canadian 
competition  in  the  supplying  of  wheat  to  the  British  market  has 
threatened  to  confine  our  own  wheat  growers  to  the  national  market; 
but  it  would  be  difficult  to  find  anywhere  in  the  United  States  a  trace 
of  jealousy  of  Canadian  agricultural  development.  For  the  United 
States,  as  for  many  other  countries,  England  is  by  far  the  greatest 
market  for  exports  and  imports  as  well.  Yet  it  has  never  occurred 
to  our  enemies  to  devise  plans  for  excluding  us  from  the  British  market, 
nor  has  it  occurred  to  us  that  we  might  ever  have  to  fight  for  it. 

The  markets  of  North  China,  on  the  other  hand,  are  relatively 
unimportant  if  measured  quantitatively.  Yet  there  are  nations  that 
endeavor  to  exclude  other  nations  from  them;  and  such  exclusion 
would  be  regarded  as  proper  ground  for  serious  diplomatic  representa- 
tions, if  not  for  war.  Central  Africa  is  worth  scarcely  anything  to  the 

1  By  Alvin  Johnson.  Adapted  from  "Commerce  and  War,"  Political  Science 
Quarterly,  XXIX,  No.  i,  March,  1914.  Copyright  by  Ginn  &  Co. 

ED.  NOTE. — Alvin  Johnson  is  on  the  editorial  staff  of  the  New  Republic  and 
was  formerly  professor  of  economics  at  Cornell,  Leland  Stanford  Junior,  and 
other  American  universities. 


44  ECONOMICS  OF  WAR 

white  races  except  as  a  market.  And  as  a  market  its  power  of  supply- 
ing and  absorbing  products  is  low.  Nevertheless  great  powers  have 
recently  been  brought  to  the  verge  of  war  by  the  question  of  the  control 
of  this  region. 

As  the  foregoing  contrast  indicates,  there  is  a  kind  of  trade  which 
involves  no  warlike  element  and  another  kind  that  is  a  natural  cause 
of  strife.  In  what  does  the  difference  fundamentally  consist?  Not 
in  the  kind  of  objects  entering  into  trade,  but  in  conditions  arising 
in  the  field  of  values  and  determining  the  possibilities  of  profit. 

Among  nations  in  the  same  plane  of  civilization,  already  closely 
related  through  trade,  there  exists  a  fairly  uniform  scale  of  values. 
With  due  allowance  for  costs  of  transportation  and  customs  duties, 
all  movable  goods  command  about  the  same  price  in  the  United 
States  as  in  England,  France,  or  Germany.  The  American  wheat 
exporter  can  just  afford  to  send  wheat  to  the  British  market.  The 
price  he  receives  pays  him  for  his  labor  and  risk  and  gives  him  ordi- 
narily a  reasonable  profit  besides.  It  gives  him  no  surplus  on  which 
to  finance  a  campaign  of  exclusion  against  Canadian  or  Russian  wheat 
exporters.  The  latter  also  are  forced  to  content  themselves  with 
moderate  rewards.  There  are  no  startling  profits  to  excite  inter- 
national jealousies.  Accordingly  there  is  nothing  in  a  trade  of  this 
character  that  could  by  any  chance  lead  to  international  strife.  Some 
ill-feeling  may  occasionally  be  produced  by  what  appear  to  be  unfair 
competitive  methods,  such  as  "dumping."  But  this  is  essentially  a 
matter  of  industrial  rather  than  commercial  competition  and  hence 
falls  outside  of  the  range  of  the  present  inquiry. 

The  trade  between  regions  differing  widely  in  civilization,  espe- 
cially if  it  is  a  new  trade,  stands  on  another  footing.  Here  the  most 
striking  fact  is  discrepancy  in  the  scale  of  values.  In  Oregon,  one 
hundred  years  ago,  four  leaves  of  tobacco  could  command  a  beaver 
skin.  On  the  African  Gold  Coast,  in  the  early  eighteenth  century,  a 
lucky  trader  might  occasionally  exchange  a  handful  of  salt  for  a 
handful  of  gold  dust.  There  was  a  time  when  the  Japanese  ratio  of 
gold  to  silver  was  one  to  four,  while  that  of  the  Occident  was  one  to 
fifteen.  From  such  instances,  chosen,  it  is  significant  to  note,  from  the 
more  or  less  remote  past,  it  is  easy  to  reconstruct  for  ourselves  the 
conditions  under  which,  the  foreign  trader  worked.  A  fortune  was 
easily  to  be  had  through  the  exploitation  of  existing  differences  in 
value  scales.  In  the  nature  of  the  case,  however,  profits  of  such 
character  could  not  be  permanent. 


ECONOMIC  BACKGROUND  OF  WAR  45 

Monopoly  was  a  normal  characteristic  of  trade  between  regions 
with  widely  varying  scales  of  value.  The  East  India  companies  of 
Portugal,  Holland,  and  England  could  not  tolerate  "interlopers" — 
their  own  nationals  not  authorized  to  trade  under  the  laws  of  the 
companies.  No  more  welcome  were  the  interlopers  in  the  American 
fur  trade  or  in  the  African  slave  trade.  And  if  a  chartered  company 
could  not  tolerate  the  competition  of  its  nationals,  what  must  have 
been  its  attitude  toward  the  citizens  of  other  nations  that  attempted 
to  trade  in  the  territory  which  it  had  marked  out  for  itself  ?  History 
affords  us  an  abundance  of  information  bearing  upon  this  question. 
Always  the  foreign  trader  was  regarded  with  detestation.  To  mislead 
him  by  false  information,  to  place  him  in  the  hands  of  corrupt  guides 
who  would  conduct  him  out  of  the  track  of  profitable  trade  or  even 
into  positive  dangers  were  among  the  mildest  measures  employed. 
If  the  foreigner  manifested  the  determination  to  force  himself  into  the 
forbidden  trade,  distrust  and  ill-will  ripened  into  implacable  hostility. 
The  history  of  trade  with  so-called  barbarous  races  is  red  with  "fac- 
tories" burned  and  massacres  perpetrated.  The  nations  to  which 
the  traders  owed  allegiance  might  be  at  peace;  but  between  the 
traders  themselves  there  could  be  no  lasting  peace.  There  is  scarcely 
anything  in  history  more  barbarous  than  those  wars  of  trading-posts 
on  the  coast  of  India  or  Africa  or  in  the  forests  of  America.  It  was 
a  warfare  without  rules,  having  for  its  object  not  subjugation  but 
utter  extermination. 

It  was  inevitable  that  the  bitterness  arising  from  such  conflicts 
should  extend,  in  ever-widening  circles,  until  they  colored  the  whole 
national  consciousness.  Spanish  cruelty,  French  chicanery,  British 
perfidy,  and  the  cold  greed  of  the  Dutch  were  popular  concepts 
originating  in  the  contest  for  trade  on  the  fringe  of  occidental  civiliza- 
tion, or,  in  economic  terms,  on  the  fringe  of  the  occidental  value 
system.  And  these  concepts,  if  they  did  not  lead  directly  to  inter- 
national war,  none  the  less  afforded  a  basis  for  the  warlike  fervor  upon 
which  the  statesman  relied  in  his  schemes  of  national  aggrandizement. 

For  upward  of  a  thousand  years  trade  has  been  carried  on  between 
the  commercialized  Occident  and  regions  under  different  scales  of 
values.  And  in  all  this  period  the  trader  has  provided  causes  of  war 
or  contributed  substantially  to  any  other  causes  that  might  arise.  In 
this  millennium,  however,  the  occidental  value  system  has  gradually 
extended  its  borders.  At  the  beginning  of  the  period  it  included  only 
the  central  European  part  of  the  Mediterranean  basin.  Trade  with 


46  ECONOMICS  OF  WAR 

Syria,  Africa,  and  North  Europe  was  worth  fighting  for.  At  the  close 
of  the  epoch  of  discovery  most  of  Europe  was  under  one  value  system ; 
nations  could  afford  to  fight  only  for  the  trade  of  other  continents. 
At  the  opening  of  the  nineteenth  century  the  cream  of  the  exploitative 
trade  of  America  and  the  East  Indies  had  been  skimmed;  yet  much 
remained  worth  monopolizing  even  there,  and  Eastern  Asia  and  the 
greater  part  of  Africa  were  virgin  soil.  At  present,  what  remains? 
Parts  of  China  and  Central  Asia,  the  heart  of  Africa,  a  few  remote 
districts  like  the  headwaters  of  the  Amazon,  and  the  territory  around 
Hudson  Bay.  For  the  rest  the  world  is  under  a  uniform  scale  of 
values.  Exploitative  trade,  which  for  ten  centuries  incited  the 
nations  to  war,  has  practically  completed  its  mission. 

Although  the  era  of  exploitative  trade  is  almost  at  an  end,  it 
would  be  rash  to  assume  that  its  political  influence  has  vanished. 
Political  systems  are  constantly  adapting  themselves  to  economic 
conditions,  but  always  lag  behind.  In  this  sense  politics  is  past 
economics.  Especially  is  this  true  -of  international  policies,  where 
tradition  necessarily  plays  an  exceedingly  important  part.  Domestic 
policies  may  change  with  the  rise  to  power  of  a  new  political  party; 
but  a  nation's  foreign  policy  is  expected  to  remain  consistent.  What- 
ever party  controls  our  government,  we  may  be  sure  that  it  will 
cherish  the  Monroe  Doctrine  with  traditional  zeal.  The  British 
government,  whether  conservative,  liberal,  or  radical,  must  fix  a 
watchful  eye  upon  the  trade  routes  to  India.  Russia,  whether  an 
absolute  monarchy  or  a  constitutional  government,  must  keep  alive 
its  traditional  yearning  for  Constantinople  and  British  India.  These 
and  similar  policies  are  in  large  measure  the  outgrowth  of  the  exploita- 
tive trade  that  is  now  vanishing  from  the  earth.  The  trading  advan- 
tages to  be  derived  from  the  occupation  of  India  are  no  longer  worth 
fighting  for.  With  India  under  British  rule  the  Russian  trader  finds 
no  obstacles  placed  in  his  path ;  and  if  India  were  under  Russian  rule, 
its  trade  with  England  would  not  be  seriously  affected.  One  hundred 
years  ago  India  was  a  rich  prize,  commercially;  it  is  now  merely  a 
region  in  which  men  may  buy  and  sell  at  moderate  profits.  Russia 
and  Great  Britain  may  yet  fight  over  India,  but  if  they  do  it  will  be 
chiefly  on  account  of  memories  of  economic  relations  now  obsolete. 

The  trade  between  regions  of  the  same  order  of  civilization  has 
itself  undergone  noteworthy  changes  in  character.  In  early  modern 
times  the  commodities  entering  most  generally  into  international 
trade  were  luxuries.  With  the  improvement  of  ocean  and  land 


ECONOMIC  BACKGROUND  OF  WAR  47 

carriage  a  vast  commerce  in  staples  grew  up.  Along  with  the  com- 
merce in  staples  has  arisen  what  in  default  of  a  better  name  we  may 
call  a  specialty  trade,  of  which  the  automobile  and  the  typewriter 
may  be  given  as  representative  objects.  The  trade  in  specialties  is 
of  course  still  greatly  inferior  to  the.  staple  trade,  but  it  is  steadily 
increasing  in  relative  importance. 

More  than  any  other  branch  of  commerce  the  specialty  trades 
stand  in  need  of  stable  and  harmonious  international  relations.  We 
cannot  establish  a  foreign  market  for  our  automobiles  or  farm  machin- 
ery without  a  considerable  expense  in  building  up  a  marketing  organi- 
zation. A  severe  customs  duty  directed  against  us  virtually  destroys 
a  capital  invested.  It  is  not  so  with  a  staple  trade.  The  British  may 
levy  a  duty  upon  our  wheat  and  curtail  our  market  in  some  measure. 
But  we  have  no  capital  invested  in  a  wheat-marketing  organization 
that  the  duty  could  destroy.  It  follows  then  that,  whereas  exporters 
of  staples  may  regard  the  commercial  policy  of  foreign  nations  as 
something  with  which  they  need  not  be  greatly  concerned,  specialty 
exporters  are  intimately  interested  in  every  change  in  commercial 
policy.  Of  all  traders  they  are  least  able  to  survive  a  customs  war  or 
other  serious  disturbance  of  international  business. 

To  summarize:  One  of  the  two  great  branches  into  which  trade 
is  divisible,  typified  by  commerce  with  colonials,  barbarians,  and 
infidels,  naturally  breeds  war.  This  branch  of  trade  has  very  nearly 
disappeared  through  the  extension  of  the  occidental  value  system  to 
the  ends  of  the  world.  Of  the  other  great  branch,  one  form,  the  trade 
in  luxuries,  once  predominant  but  now  relatively  insignificant,  has 
served  in  its  time  to  produce  international  discord.  The  great  staple 
trade  of  modern  times  has  had  nothing  to  gain  from  international 
animosities,  and  the  growing  specialty  trade  has  everything  to  lose 
from  them.  We  are  therefore  justified  in  asserting  that  war  and 
commerce,  united  through  a  thousand  years,  are  now  in  fact  divorced, 
except  perhaps  in  the  eyes  of  the  international  politician,  who  still 
premises  his  action  upon  their  ancient  relation. 

2.     CONCESSIONARY  INVESTORS:   A  POWERFUL 

SPECIAL  INTEREST1 

No  one  will  dispute  the  fact  that  certain  individuals  in  positions 
of  power  worked  actively  to  bring  on  the  present  crisis,  nor  that  acts 

1  By  Alvin  Johnson  (see  p.  43).  Adapted  from  "The  War:  By  an  Econo- 
mist," Unpopular  Review,  II  (July-December,  1914),  41 1-29.  Copyright  by  Henry 
Holt  &  Co.,  1914. 


48  ECONOMICS  OF  WAR 

were  committed  that  deserve  the  execration  of  mankind.  It  will  not 
be  denied  that  ancient  political  and  cultural  antagonisms  essentially 
conditioned  the  present  war;  but  for  such  antagonisms  the  peace 
would  have  remained  unbroken.  Still  these  forces  are,  in  a  sense, 
static  and  hence  not  adequate  to  explain  change.  The  Russian  is  not 
more  aggressive,  the  German  not  more  arrogant,  nor  the  Englishman 
more  intent  upon  naval  dominance  than  they  were  twenty  years  ago. 
Pride  of  race  and  intolerance  of  religion  have  been  with  us  always, 
and  there  is  no  evidence  of  their  recent  intensification.  What  chiefly 
needs  explanation  is  that  for  a  generation  the  consciousness  of  Europe 
has  been  filling  up  with  fighting  concepts.  The  fact  has  been  noted 
by  all  serious  students  of  European  international  relations.  It  is 
forcibly  demonstrated  by  the  enthusiasm  with  which  the  several 
nations,  each  with  a  reason  of  its  own,  have  entered  the  present  conflict. 
Desperate  efforts  have  been  making,  for  years,  to  prepare  for  the 
struggle  that  was  regarded  as  inevitable.  Accordingly  we  can  impute 
to  the  acts  of  particular  persons  little  more  than  the  choice  of  time 
and  occasion  for  the  outbreak  of  hostilities.  The  time  may  have  been 
inauspicious ;  the  occasion  may  have  been  one  that  will  not  look  well 
in  history.  For  the  underlying  forces  working  cumulatively  toward 
an  issue  we  must,  however,  look  elsewhere  than  to  personal  volition. 

The  greed  of  the  armament  industries  and  the  incessant  playing 
upon  popular  opinion  by  their  subsidized  organs  have  often  been 
assigned  to  a  chief  role  in  the  drama  of  international  discord.  Com- 
petitive military  preparations,  drawing  to  themselves  an  increasing 
share  of  the  intellectual  energies  of  a  nation,  have  long  been  regarded 
as  a  menace  to  the  peace  of  the  world.  Every  organ  seeks  to  exercise 
a  function.  The  Crown  Prince  of  Germany,  in  his  panegyric  of 
militarism,  expresses  poignant  regret  that  all  the  splendid  military 
forces  of  the  Empire  should  be  expended  futilely  in  peaceful  show. 
Professional  warriors  want  war  and  will  work  to  bring  it  abou^t.  The 
future  historian  will  doubtless  give  weight  to  the  above-mentioned 
forces  as  well  as  to  many  others  that  cannot  here  be  touched  upon. 
But  he  will  assign  vastly  more  importance  than  we  of  today  to  the 
national  antipathies  engendered  by  the  scramble  for  colonial  pos- 
sessions and  to  the  motives  giving  rise  to  it.  It  may  be  worth  our 
while,  even  now,  to  fix  our  attention  upon  this  aspect  of  the  question. 

What  did  Germany  want  with  the  "Land  of  the  Morning"? 
What  does  the  Eastern  Mediterranean  mean  to  Russia  ?  And  what 
would  it  signify  to  England  if  either  dream  were  realized?  Is  it  a 
matter  of  sentiment,  of  "  historic  mission,"  or  is  it  a  matter  of  practical 


ECONOMIC  BACKGROUND  OF  WAR  49 

interest  ?  And  if  a  matter  of  practical  interest,  whose  interest  weighs 
so  heavily  that  it  must  be  bought  with  cities  in  ruins  and  provinces 
devastated,  with  hundreds  of  thousands  of  the  best  and  most  useful 
lives  sent  down  to  dusty  death  ?  Manifestly,  not  the  interest  of  the 
mass  of  humanity. 

The  Morgenland,  be  it  understood,  is  only  one  of  the  rotten  stones 
in  the  arch  of  civilization.  Mexico  is  another.  India,  China,  Africa 
are  of  similar  character.  But  the  Morgenland  may  serve  as  a  type 
for  our  study,  and  we  may  profitably  confine  our  analysis  to  the 
German  yearnings  for  the  Morgenland,  not  because  they  are  in  any 
way  unique,  but  because  they  are  typical. 

The  colonial  trader  was  once  the  chief  cause  of  wars,  and  he  still 
contributes  his  quota  to  international  misunderstanding  and  hostility. 
But  there  is  another  interest  that  has  grown  to  far  greater  importance 
in  the  colonial  domain.  This  we  may  describe  as  the  concessionary 
interest.  Vast  fortunes  have  been  accumulated,  in  the  semibarbarous 
belt,  by  the  exploitation  of  natural  resources  and  works  of  public 
utility.  The  "Land  of  the  Morning"  would  be  exceptionally  rich 
in  concessions  to  the  nationals  of  any  imperial  state.  There  are  oil 
fields  and  mines  to  open,  railways  and  irrigation  works  to  construct. 
Some  of  these  opportunities  are  already  in  German  possession;  their 
security,  however,  depends  upon  continued  exercise,  by  Germany,  of 
influence  upon  the  Ottoman  government.  That  government  is 
notoriously  shifty,  and  the  interests  involved  will  never  be  wholly 
safe  until  the  Levant  is  a  German  colony.  The  concessionary 
interest,  like  the  colonial  trading  interest,  offers  chances  of  sudden 
wealth.  The  former,  however,  is  far  more  vulnerable  than  the  latter. 
The  fixed  investment  of  the  concessionary  is  far  greater  than  that  of 
the  trader.  Hence,  while  the  colonial  trading  interest  thrives  best 
with  the  support  of  the  home  government,  to  the  concessionary  interest 
such  support  is  indispensable.  Politics  is  a  necessary  part  of  the  con- 
cessionary business. 

How  far  is  the  concessionary  interest  identical  with  the  national 
interest?  Let  us  consider  what  difference  it  makes  to  you  and  me 
whether  the  Pearson  interests  or  the  Waters-Pierce  interests  control 
the  oil  fields  of  Mexico.  If  the  Pearson  interests,  several  great 
fortunes  will  be  constituted  in  England;  if  the  Waters-Pierce,  similar 
fortunes  will  be  .constituted  here.  In  either  case  the  money  will  lie 
at  an  infinite  distance  from  you  and  me.  Still  we  are  patriots  and 
would  rather  have  it  here  than  in  England.  Patriotism  aside,  the 
great  fortune  here  will  pay  income  tax  to  our  own  treasury.  Its 


50  ECONOMICS  OF  WAR 

spending  will  afford  many  golden  crumbs  to  fellow-citizens  of  ours. 
The  exploitation  of  the  oil  fields  will  require  much  machinery,  for 
which,  under  Waters-Pierce  control,  the  first  bid  would  be  offered  to 
our  own  industry.  Many  young  men  of  our  nationality  would  find 
employment  as  engineers,  foremen,  superintendents.  Undoubtedly 
it  is  better  for  the  national  interest  to  have  the  concession  in  national 
hands.  But  what  is  the  magnitude  of  the  concessionary  interest  and 
how  many  votes  should  it  have  on  questions  of  peace  and  war  ?  Of 
the  whole  capital  of  Great  Britain  not  one-fifth  consists  in  foreign 
investments,  and  of  that  fifth  scarcely  a  quarter  can  be  concessionary. 
One-tenth  of  Germany's  capital  is  invested  abroad,  and  probably  not 
a  fifth  of  that  is  concessionary.  Of  our  own  capital  one  part  in  a 
hundred  is  in  foreign  investments,  of  which  one-half  is  in  Mexico. 
Not  nearly  all  of  that  half  is  concessionary.  It  did  not  prove  to  be 
enough  to  go  to  war  over. 

Capital,  it  is  often  said,  is  cosmopolitan;  capital  knows  no  such 
thing  as  patriotism.  This  may  be  true  of  the  cautious,  colorless 
capital  of  ordinary  finance  and  industry.  It  is  not  true  of  the  capital 
upon  which  speculative  enterprise  is  based.  It  was  an  intense 
patriotism  that  was  avowed  by  Jay  Gould  and  Harriman;  intense 
is  the  patriotism  of  J.  J.  Hill,  the  duPonts,  and  the  Guggenheims. 
Even  Mellen  is,  or  was,  patriotic  in  his  feelings  toward  New  England. 
But  most  intense  of  all  is  the  patriotism  of  the  capitalist  whose 
interests  lie  in  the  twilight  zone  of  the  barbaric  belt.  Purer  expres- 
sions of  devotion  to  America,  of  deep  concern  for  her  future,  than 
those  issuing  from  the  lips  of  American  concessionaries  in  Mexico  you 
never  hear.  We  were  all  moved  by  the  grandiose  African  dream  of 
Cecil  Rhodes.  "All  red" — i.e.,  British — a  British  heart  within  every 
black  skin  from  the  Cape  to  Cairo.  The  case  is  typical  of  the  capi- 
talist speculator  abroad.  He  is  a  patriot  through  thick  and  thin, 
not  a  white-blooded  "cit"  like  you  and  me,  who  before  volunteering 
support  for  our  country's  acts  would  presume  to  pass  judgment  upon 
them.  He  is  a  patriot  who  would  knock  a  chip  off  the  shoulder  of  the 
meanest  upstart  of  a  barbarian  dictator  without  regard  to  the  cost 
of  doing  it;  not  a  calculator  like  you  and  me. 

By  interest  the  concessionary  capitalist  is  a  patriot.  He  needs 
his  country  in  his  business.  But  this  is  by  no  means  the  whole 
explanation  of  his  patriotism.  His  type  is  reckless  and  therefore 
generous  and  idealistic.  He  must  love  and  admire  great  things,  and 
what  thing  is  greater  than  the  imperial  dominion  of  his  country  ? 
One  must  have  a  mean  opinion  of  human  nature  to  suspect  the  purity 


ECONOMIC  BACKGROUND  OF  WAR  51 

of  the  motives  of  Cecil  Rhodes.  Doubtless  Rhodes  began  with 
selfish  motives,  but  his  private  interests  were  soon  submerged  in  his 
imperial  ambitions.  We  may  not  be  justified  in  assuming  that 
selfish  interest  operates  to  the  utter  exclusion  of  all  patriotic  motives. 
Patriotism  has  always  burned  more  brightly  in  border  provinces  than 
in  the  heart  of  the  national  territory.  It  is  natural  then  that  patriot- 
ism should  be  still  more  intense  in  those  extensions  of  the  national 
domain  represented  by  permanent  interests  abroad. 

In  an  ideal  scheme  of  things  love  of  one's  own  country  would  not 
involve  hatred  and  contempt  for  other  countries.  But  patriotism 
compounded  with  financial  interest  does  usually  produce  detestation 
for  the  corresponding  alien  compound.  We  who  meet  the  Germans 
in  America,  in  England,  in  Germany,  engaged  in  the  common  labor 
of  advancing  man's  control  over  nature,  respect  them  and,  if  we  see 
much  of  them,  love  them.  Our  capitalist  speculators  in  South 
America  and  in  the  Orient,  meeting  their  similars  of  German  nation- 
ality, hate  them  heartily.  Those  speculators  are  the  nerve  ends  of 
modern  industrial  nationalism,  and  they  are  specialized  to  the  work 
of  conveying  sensations  of  hate.  For  the  present  we  have  few  nerves 
of  the  kind,  and  all  they  have  succeeded  in  conveying  to  us'is  a  vague 
feeling  of  uneasiness  over  the  German  advance  in  the  colonial  field. 
Far  more  powerful  must  have  been  the  reaction  upon  nations  like 
England  and  France  that  are  serious  competitors  in  the  same  field. 
And  German  capitalist  speculators,  thwarted  in  their  designs  by  the 
English  and  the  French,  have  contributed  to  the  popular  feeling  that 
Germany  must  fight  for  what  she  gets. 

The  capitalistic  speculator,  even  when  operating  at  home  where 
his  action  may  be  directed  against  us,  enjoys  a  power  over  the  popular 
imagination  and  a  political  influence  quite  incommensurate  with  the 
extent  of  his  interests.  When  the  seat  of  his  operations  is  a  foreign 
territory  whence  flow  back  reports  of  his  great  achievements — achieve- 
ments that  cost  us  nothing  and  bring  home  fortunes  to  be  taxed  and 
spent  among  us — his  social  and  political  influence  attains  even  more 
exaggerated  proportions.  And  this  is  the  more  significant  in  view 
of  the  fact  that  his  relations  with  government — now  even  a  more 
important  part  of  his  business — are  concentrated  upon  that  most 
sensitive  of  governmental  organs,  the  foreign  office. 

When  diplomatic  questions  concerning  the  non-industrial  belt 
arise,  and  most  modern  diplomatic  questions  concern  this  belt,  the 
voice  of  the  concessionaries  is  heard  in  the  councils  of  state.  This 
voice  is  the  more  convincing  because  of  the  patriotism  that  colors 


52  ECONOMICS  OF  WAR 

f 
its  expression  of  interest.     What  is  perhaps  more  important,  the 

ordinary  conduct  of  exploitative  business  in  an  undeveloped  state 
keeps  the  concessionary  in  constant  relation  with  the  consular  and 
diplomatic  officers  established  there.  In  a  sense  such  officers  are  the 
concessionary's  agents,  yet  their  communications  to  the  home  office 
are  the  material  out  of  which  diplomatic  situations  are  created.  It 
is  accordingly  idle  to  suppose  that  exploitative  capital  in  foreign 
investments  weighs  in  foreign  policy  only  as  an  equal  capital  at  home. 

It  is  the  interest  of  exploitative  capital  that  makes  the  "Morning 
Land,"  Mexico,  China,  and  Africa  rotten  stones  in  the  arch  of  civili- 
zation. But  for  exploitative  capital  those  regions  might  remain 
backward,  socially  and  politically;  this  would  not  greatly  concern 
any  industrial  nation  except  in  so  far  as  it  responded  to  a  missionary 
impulse.  The  backward  states  afford,  however,  possibilities  of  sudden 
wealth;  and  since  this  is  the  case,  they  must  attract  exploiters,  who 
must  seek  and  obtain  the  backing  of  their  home  governments,  with 
resultant  international  rivalry,  hostility,  war. 

If  we  could  confidently  predict  the  industrialization  of  the  back- 
ward countries,  we  should  be  able  to  foresee  an  end  of  this  one  most 
fruitful  of  all  sources  of  international  strife.  But  China  will  not  be 
industrialized  for  a  generation  at  least;  and  many  generations  must 
elapse  before  the  tropics  are  concessionproof.  Accordingly  the  one 
hope  for  universal  peace  would  appear  to  lie  in  the  possibility  of 
divorcing,  in  the  popular  consciousness,  the  concessionary  interest 
from  the  national  interest. 

The  concession  and  the  closed  trade  are  the  fault  lines  in  the  crust 
of  civilization.  Solve  the  problems  of  the  concession  and  the  closed 
trade  and  the  earth-hunger  will  have  lost  its  strongest  stimulus,  and 
peace,  when  restored,  may  abide  throughout  the  world. 

3.    TARIFF  WALLS  AND  INTERNATIONAL  FRICTION1 

From  the  dawn  of  history  uncontrolled  commercialism  has  been 
one  of  the  principal  causes  of  misgovernment,  and  more  especially  of 

1  By  the  Earl  of  Cromer.  Adapted  from  "  Free  Trade  in  Its  Relation  to  Peace 
and  War,"  Nineteenth  Century,  LXVIII  (July-December,  1910),  386-88.  Copy- 
right by  Leonard  Scott  Publication  Co. 

Evelyn  Baring,  first  Earl  of  Cromer  (1841 — ),  was  British  agent  and  consul- 
general  in  Egypt,  1883-1907.  He  has  had  a  distinguished  career  in  the  army  and 
in  the  government  of  India  and  Egypt  and  has  written  numerous  books — military, 
political,  and  literary.  This  paper  was  read  before  the  International  Free  Trade 
Congress,  held  at  Antwerp  in  August,  1910. 


ECONOMIC  BACKGROUND  OF  WAR  53 

the  misgovernment  of  subject  races.  The  early  history  of  the  Span- 
iards in  South  and  Central  America,  as  well  as  the  more  recent  history 
of  other  states,  testifies  to  the  truth  of  this  generalization.  Similarly 
trade — that  is  to  say,  exclusive  trade — far  from  tending  to  promote 
peace,  has  not  infrequently  been  accompanied  by  aggression  and  has 
rather  tended  to  promote  war.  Tariff  wars,  which  are  the  natural 
outcome  of  the  protective  system,  have  been  of  frequent  occurrence, 
and,  although  I  am  not  at  all  prepared  to  admit  that  under  no  circum- 
stances is  a  policy  of  retaliation  justifiable,  it  is  certain  that  that 
policy,  carried  to  excess,  has  at  times  endangered  European  peace. 
There  is  ample  proof  that  the  tariff  war  between  Russia  and  Germany 
in  1893  "was  regarded  by  both  responsible  parties  as  likely  to  lead 
to  a  state  of  things  dangerous  to  the  peace  of  Europe."  Professor 
Dietzel  in  his  very  remarkable  and  exhaustive  work  on  Retaliatory 
Duties  shows  very  clearly  that  the  example  of  tariff  wars  is  highly 
contagious.  Speaking  of  events  which  occurred  in  1902  and  sub- 
sequent years  he  says  that  Germany  set  the  bad  example.  Russia', 
Austria-Hungary,  Roumania,  Switzerland,  Portugal,  Holland,  Servia, 
followed  suit.  An  international  arming  epidemic  broke  out.  Every- 
where indeed  it  was  said:  "  We  are  not  at  all  desirous  of  a  tariff  war. 
We  are  acting  only  on  the  maxim  so  often  proclaimed  among  us,  Si 
vis  pacem,  para  bellum." 

Can  it  be  doubted  that  there  is  a  distinct  connection  between 
these  tariff  wars  and  the  huge  armaments  which  are  now  maintained 
by  every  European  state?  The  connection  is,  in  fact,  very  close. 
Tariff  wars  engender  the  belief  that  wars  carried  on  by  shot  and  shell 
may  not  improbably  follow.  They  thus  encourage  and  even  neces- 
sitate the  costly  preparations  for  war  which  weigh  so  heavily,  not 
only  on  the  industries,  but  also  on  the  moral  and  intellectual  progress 
of  the  world. 

To  sum  up  all  I  have  to  say  on  this  subject,  I  do  not  for  a  moment 
suppose  that  universal  free  trade — even  if  the  adoption  of  such  a 
policy  were  conceivable — would  inaugurate  an  era  of  universal  and 
permanent  peace.  Whatever  fiscal  policy  be  adopted  by  the  great 
commercial  nations  of  the  world,  it  is  wholly  illusory  to  suppose  that 
the  risk  of  war  can  be  altogether  avoided  in  the  future  any  more  than 
has  been  the  case  in  the  past.  But  I  am  equally  certain  that,  whereas 
exclusive  trade  tends  to  exacerbate  international  relations,  free  trade, 
by  mutually  enlisting  a  number  of  influential  material  interests  in  the 
cause  of  peace,  tends  to  ameliorate  those  relations,  and  thus,  pro 


54  ECONOMICS  OF  WAR 

tanto,  to  diminish  the  probability  of  war.  No  nation  has,  of  course, 
the  least  right  to  dictate  the  fiscal  policy  of  its  neighbors;  neither  has 
it  any  legitimate  cause  to  complain  when  its  neighbors  exercise  their 
unquestionable  right  to  make  whatever  fiscal  arrangements  they 
consider  conducive  to  their  own  interests.  But  the  real  and  ostensible 
causes  of  war  are  not  always  identical.  When  once  irritation  begins 
to  rankle  and  rival  interests  clash  to  an  excessive  degree,  the  guns  are 
apt  to  go  off  by  themselves,  and  an  adroit  diplomacy  may  confidently 
be  trusted  to  discover  some  plausible  pretext  for  their  explosion. 

Some  twelve  years  ago  the  British  flag  was  hoisted  in  the  Soudan 
side  by  side  with  the  Egyptian.  Europe  tacitly  acquiesced.  Why 
did  it  do  so?  It  was  because  a  clause  was  introduced  into  the 
Anglo-Egyptian  Convention  of  1899  under  which  no  trade  prefer- 
ence was  to  be  accorded  to  any  nation.  All  were  placed  on  a  foot- 
ing of  perfect  equality.  Indeed  the  whole  fiscal  policy  adopted  in 
Egypt  since  the  British  occupation  in  1883  has  been  based  on  distinctly 
free-trade  principles.  Indirect  taxes  have  been  in  some  instances 
reduced.  Those  that  remain  in  force  are  imposed,  not  for  protective, 
but  for  revenue,  purposes,  whilst  in  one  important  instance—that  of 
cotton  goods — an  excise  duty  has  been  imposed  in  order  to  avoid  the 
risk  of  the  customs  duties  acting  protectively. 

Free  trade  mitigates,  though  it  is  powerless  to  remove,  inter- 
national animosities.  Exclusive  trade  stimulates  and  aggravates 
those  animosities.  I  do  not  by  any  means  maintain  that  this  argu- 
ment is  by  itself  conclusive  against  the  adoption  of  a  policy  of  pro- 
tection, if  on  other  grounds  the  adoption  of  such  a  policy  is. deemed 
desirable;  but  it  is  one  aspect  of  the  question  which,  when  the  whole 
issue  is  under  consideration,  should  not  be  left  out  of  account. 

4.     THE 

The  whole  situation  might  be  summed  up  by  saying  that  the 
commercial  development  of  the  world  will  not  wait  until  each  territory 
has  created  for  itself  a  stable  and  fairly  modern  political  system.  By 
some  means  or  other  the  weak  states  have  to  be  brought  within  the 

1  By  Walter  Lippmann.  Adapted  from  The  Stakes  of  Diplomacy,  pp.  98-125. 
Copyright  by  Henry  Holt  &  Co.,  1915.  Cf.  the  final  paragraph  from  Bernhardi, 
pp.  25-26  above. 

ED.  NOTE. — Walter  Lippmann  (1889 — )  is  a  prominent  young  American 
writer  on  political  subjects.  He  has  been  one  of  the  editors  of  the  New  Republic 
and  is  now  serving  the  government  in  a  confidential  capacity. 


ECONOMIC  BACKGROUND  OF  WAR  $$ 

framework  of  commercial  administration.  Their  independence  and 
integrity,  so  called,  are  dependent  upon  their  creating  conditions  under 
which  world-wide  business  can  be  conducted.  The  pressure  to  organ- 
ize the  globe  is  enormous. 

The  formula  of  modern  imperialism  seems  to  be  that  financial 
groups  enter  a  weak  state  and  create  "national  interests,"  which  then 
evoke  national  feeling.  The  corruption  and  inefficiency  of  the  weak 
state  "endanger"  the  interests;  patriotism  rises  to  defend  them,  and 
political  control  follows. 

The  diplomats  have  even  had  a  programme  for  the  peaceful  organi- 
zation of  backward  countries.  Their  formula  has  been  "  the  preser- 
vation of  their  integrity  and  the  open  door  to  the  commerce  of  all 
nations."  Almost  every  recent  diplomatic  document  dealing  with 
Asia  or  Africa  contains  some  such  announcement.  The  doctrine  is 
intended  to  allay  suspicion,  but  it  does  more  than  that.  In  a  half- 
hearted way  it  grasps  at  a  solution  of  the  world-problem.  For  if 
you  can  preserve  the  integrity  of  a  country,  and  you  can  keep  the 
door  open,  then  you  preclude  any  one  nation  from  monopoly,  you 
give  all  nations  an  interest  in  preventing  aggression,  and  you  remove 
the  prime  source  of  friction,  which  is  the  attempt  of  traders  to  secure 
control  of  the  territory  and  discriminate  against  their  competitors. 
The  diplomats  diagnosed  the  malady.  They  saw  that  the  weakness 
of  these  countries  invited  aggressive  competition,  so  they  proclaimed 
territorial  integrity.  They  saw  that  the  chief  interest  of  all  nations 
was  trade,  so  they  proclaimed  the  open  door.  They  saw  that  only 
one  nation  could  gain  by  imperial  control  and  special  economic 
privilege,  and  they  hoped  that  the  interests  of  all  the  others  would 
prevent  the  absorption  of  weaker  states.  The  ideal  they  stood  for 
was  international.  Taken  at  its  face  value,  it  meant  that  modern 
commerce  was  to  penetrate,  without  destroying,  the  life  of  the  natives 
and  without  pre-empting  the  territory  for  the  business  men  of  any  one 
nationality. 

The  only  trouble  with  the  ideal  was  that  it  could  not  be  taken 
at  its  face  value.  Integrity  and  the  open  door  have  almost  never  been 
realized,  and  the  phrases  of  treaties  have  frequently  remained  an 
empty  aspiration.  Americans  ought  to  have  no  difficulty  in  under- 
standing this  result.  We  too  have  an  ideal  of  the  open  door  to  all 
comers,  and  we  know  how  hard  it  has  been  to  make  our  government 
live  up  to  that  ideal.  We  know  how  railroads  have  discriminated  in 
their  rates,  how  officials  have  given  special  privileges  to  special  interests. 


56  ECONOMICS  OF  WAR 

We  have  fought  a  long  fight  against  it.  Well,  the  same  kinds  of 
forces  which  have  so  often  shut  the  open  door  in  the  United  States 
are  at  work  in  these  weak  countries  where  governments  extend  their 
imperial  control.  Groups  of  business  men  tend  to  secure  political 
power  in  the  vassal  territory,  and  after  that  integrity  and  the  open 
door  are  likely  to  be  a  good  deal  of  a  mockery. 

A  rough  formula  of  what  happens  may  be  drawn  up.  A  govern- 
ment for  one  reason  or  another  acquires  dominion  over  a  backward 
people.  Nowadays  it  almost  always  does  so  with  the  consent  of  the 
other  Powers.  The  act  is  proclaimed  to  be  a  European  stewardship, 
a  disinterested  piece  of  international  policing;  all  nations  are  promised 
equal  rights,  the  "protected"  people  are  promised  a  benevolent 
guardian.  This  work  is  done,  not  by  angels,  but  by  colonial  officials. 
These  human,  all- too-human,  beings  become  associated  with  con- 
tractors, concessionaires,  bankers,  traders.  The  officials  have  big 
favors  to  give — franchises,  mining  rights,  docking  privileges,  land 
laws,  taxation,  customs  administration,  public  works.  The  colonial 
officials  must  give  them  to  somebody,  and  they  have  to  translate  the 
phrase  "open  door"  into  these  concrete  matters.  If  they  are  French 
officials  knowing  French  business  men,  what  is  more  natural  than  that 
these  decisions  should  go  against-  the  German  competitors  ?  With 
the  best  intentions  in  the  world  it  would  be  hard  to  maintain  equal 
rights.  And  their  intentions  are  not  always  the  best  in  the  world. 

Let  me  make  myself  clear:  I  do  not  think  Europe  is  fighting  about 
any  particular  privilege  in  the  Balkans  or  in  Africa.  I  think  she  is 
fighting  because  Europe  had  been  divided  into  two  groups  which 
clashed  again  and  again  over  the  organization  of  the  backward  parts  of 
the  world.  Those  clashes  involved  prestige,  called  forth  national 
suspicions,  created  the  armaments,  and  after  a  while  no  question 
could  be  settled  on  its  merits.  Each  question  involved  the  standing 
of  the  Powers,  each  question  was  a  test  of  relative  strength.  Since  no 
question  could  be  settled,  every  question  continued  to  pour  its  poison 
into  the  European  mind  and  made  European  diplomacy  incapable  of 
preserving  the  peace. 


II 

WAR  AS  A  BUSINESS  VENTURE 

Introduction 

Does  successful  war  pay  ?  In  the  first  place,  as  Norman  Angell 
(selection  VI,  i)  is  careful  to  point  out, 'and  as  Brailsford  (Selection 
VII,  3)  further  emphasizes,  it  does  not  require  gains  for  the  people  as  a 
whole  to  explain  war.  It  is  enough  if  influential  classes  have  a  mis- 
taken hope  of  gains.  Moreover,  a  defensive  war  is  not  expected 
to  show  a  profit  in  measurable  terms,  and  it  is  a  curious  fact  that 
modern  wars  appear  to  both  sides  as  defensive  conflicts.  A  nation 
that  cannot  protect  itself  against  small  encroachments  may  suffer 
large  ones,  and  this  includes  encroachments  on  national  prestige — that 
infinitely  elastic  national  asset.  From  the  point  of  view  of  sheer 
rivalry  in  prestige,  a  loss  to  the  conquered  may  be  felt  as  in  itself  a 
gain  to  the  conqueror  regardless  of  whether  it  leaves  them  both  better 
or  worse  off  than  before,  in  absolute  terms.  The  proposals  and 
measures,  mentioned  below,  that  look  toward  crippling  foreign  com- 
petition, are  probably  of  this  sort.  But  there  is  a  dilemma  here.  The 
conqueror  has  his  choice  between  ruining  the  industries  that  compete 
with  his  own  and  making  them  productive  in  order  to  exploit  them  for 
his  own  gain,  but,  as  Mr.  Brailsford  indicates,  he  cannot  do  both. 

The  case  for  the  unprofitableness  of  conquest  (see  selections  from 
Norman  Angell)  rests  on  the  fact  that  the  field  for  exploitation  is 
being  more  and  more  limited:  first,  by  international  law  (see  extracts 
from  the  Hague  Convention),  and  second,  by  the  very  complexity 
and  mutuality  of  the  economic  system  of  today.  Plundering  which 
wrecks  the  efficiency  of  the  conquered  territory  would  soon  recoil  on 
the  plunderers,  for  they  could  not  gain  by  trade  with  bankrupts  nor 
sell  to  those  who  have  no  goods  to  pay  with.  Plundering  which 
would  not  wreck  the  efficiency  of  the  conquered  territory  means 
nothing  less  than  the  reorganization  of  the  economic  system  of  a 
nation  under  new  ownership  and  control  and  in  the  face  of  the  unwill- 
ingness of  the  people  to  lend  themselves  to  such  a  program.  Only 
the  Germans  would  conceive  such  an  undertaking,  and  it  is  doubtful 
if  even  they  could  carry  it  through  successfully. 

57 


58  ECONOMICS  OF  WAR 

Their  projects,  however,  reveal  a  readiness  to  undertake  a  more 
sweeping  transfer  of  ownership  and  reorganization  of  work  in  con- 
quered areas  than  Norman  Angell  takes  into  consideration  in  his  view 
of  the  case.  Germany  has  dug  her  trenches,  harvested  her  crops,  and 
woven  her  uniforms  with  the  labor  of  occupied  territories,  has  fed  her 
soldiers  with  their  wheat  and  her  guns  with  their  iron.  This  increases 
Germany's  fighting  power  enormously,  but  not  necessarily  her  finan- 
cial profits,  unless  she  withholds  fair  compensation  from  private 
owners.  To  work  these  resources  permanently  to  the  financial  profit 
of  German  citizens  is  another  matter,  and  it  remains  to  be  seen  how 
far  this  can  be  accomplished. 

V.     The  Negative  Side 
i.     CONQUEST  DOES  NOT  PAY1 

The  series  of  Bourse  crises  on  the  Berlin  Stock  Exchange  by  which 
German  bankers,  merchants,  and  manufacturers  suffered  heavily  as  a 
direct  result  of  an  act  of  political  aggression  on  the  part  of  the  German 
government  is  a  fact  which  illustrates  and  confirms  in  a  sufficiently 
striking  fashion  the  thesis  which  I  have  attempted  to  outline  in  "  The 
Great  Illusion." 

What,  in  two  words,  is  this  thesis  ?  It  is  this :  that  it  has  in  the 
modern  world  become  impossible,  by  successful  war  between  civilized 
nations,  to  derive  any  profit  whatsoever.  This  involves  of  course  a 
complete  repudiation  of  the  axioms  which  have  heretofore  dominated 
and  still  to  a  large  extent  dominate  European  statecraft.  The  naval 
rivalry  between  Great  Britain  and  Germany  is  part  of  that  struggle 
for  commercial  and  industrial  predominance  which  is  going  on  between 
two  countries,  and  moreover  the  Mahans,  von  Stengels,  Homer  Leas, 
and  Roosevelts  defend  these  ''axioms"  by  what  is  presumed  to  be  a 
very  profound  philosophy.  It  is  all,  we  are  told,  in  keeping  with  the 
great  laws  of  life  in  the  world — with  all  that  we  know  of  the  evolution- 
ary process:  throughout  nature  the  law  of  fight  and  struggle  is 
supreme;  so  must  it  be  with  nations. 

Well,  it's  all  wrong.  It  considers  only  one  half  of  the  facts,  and 
the  other  fcalf,  perhaps  the  larger,  certainly  the  dominating  half  in 
the  general  process  of  human  development,  is  left  out.  And  the 

1  By  Norman  Angell  (see  p.  9).  Adapted  from  "Recent  International  Events 
and  The  Great  Illusion,"  World's  Work,  XXIII  (1911-12),  149-54-  Cf.  also 
p.  42,  above. 


WAR  AS  A  BUSINESS  VENTURE  59 

evolutionary  analogy  at  which  I  have  hinted  and  which  is  accepted 
almost  universally  as  a  true  analogy,  is  an  absolutely  false  one,  and 
there  again  the  dominating  factor,  as  we  shall  see  presently,  has  not 
been  considered. 

The  illusion  is  a  double  one.  Struggle  is  only  one  half  of  the  law 
of  life.  The  other  half,  without  which  life  would  be  impossible,  is 
known  as  the  law  of  mutual  aid,  co-operation.  This  process,  which 
throughout  all  the  higher  forms  of  life  runs  parallel  with  the  law  of 
struggle,  is  seen  even  in  the  earliest  organism.  Its  simplest  form  is 
the  co-operation  of  male  and  female.  If  struggle  in  its  completest 
form  prevented  that  co-operation,  life  would  never  have  developed 
beyond  the  first  organism  that  possessed  a  sex;  and  it  will  be  found 
that  in  the  process  of  development  every  added  factor  of  co-operation 
diminishes  the  proportional  importance  of  the  factor  of  conflict.  For 
this  reason  in  the  domain  of  sociology  the  relative  roles  of  these  two 
factors  are  constantly  changing.  Let  us  illustrate  as  concretely 
as  possible. 

When  Olaf,  the  viking  king,  descended  on  the  coast  of  Northum- 
bria  he  hammered  his  way  into  a  Saxon  stronghold,  seized  all  the  gold, 
and  silver,  and  hides,  and  corn,  and  cattle,  and  women,  and  slaves 
that  he  could  lay  hand  on,  sailed  back  home,  and  was  the  richer  by 
just  the  amount  of  loot  he  could  safely  land  on  his  own  shores.  As 
against  the  profit  of  such  an  expedition  he  had  to  set  on  the  debit  side 
of  the  account  practically  nothing  at  all. 

But  imagine  a  modern  Olaf  landed  in  London  at  the  head  of  a 
victorious  army  making  straight  for  the  cellars  of  the  Bank  of  England 
and  looting  them  in  the  fashion  in  which  one  distressed  correspondent 
of  a  London  paper  foresees — would  the  position  be  the  same  ?  The 
position  would  be  absolutely  different;  for  the  day  that  he  looted  the 
Bank  of  England,  the  Bank  of  Germany  would  suspend  payment  and 
his  own  balance  therein  disappear.  For  every  sovereign  that  he  took 
from  English  merchants  in  this  way,  German  merchants  would 
probably  pay  a  hundred.  Every  time  that  he  brought  an  English 
bank  or  insurance  company  or  commercial  house  to  ruin  he  would 
know  with  absolute  and  mathematical  certainty  that  he  would  by 
the  same  blow  bring  a  German  bank,  a  German  insurance  company, 
and  a  German  house  to  ruin  also.  Can  we  pretend,  therefore,  that 
conditions  have  not  altered  ?  Of  course  they  have  altered.  The  factor 
of  co-operation  which  our  credit  system  every  day  and  every  hour  is 
intensifying  has  modified  profoundly  the  weight  of  the  factor  of 


60  ECONOMICS  OF  WAR 

conflict;  to  such  a  degree  indeed  that  confiscation,  in  the  rude  form 
in  which  the  nervous  correspondent  I  have  cited  suggests,  has  become 
a  practical  impossibility.  The  series  of  recent  financial  crises  in 
Berlin  have  given  this  abundant  illustration.  What  happened? 
The  German  government  took  an  action  which  threatened  the  peace 
of  Europe  and  which  was  aimed  specifically  at  France.  The  first 
tangible  result  of  such  an  action  was  that  German  industrial  securities 
lost  value  to  the  extent  of  some  scores  of  millions,  and  the  whole 
incident  has  cost  German  commerce  and  industry  a  great  deal  more 
than  it  has  cost  any  of  the  other  nations,  although  they  too  have,  of 
course,  suffered  badly.  It  will  not  take  many  more  "black  Satur- 
days" to  show  even  the  German  public  that  to  disorganize  the  trade 
of  some  hundreds  of  millions  for  the  purpose  of  securing  dubious 
exclusive  advantages  in  a  territory  which  at  present  provides  a 
market  of  something  less  than  half  a  million  is  not  to  throw  away  a 
sprat  in  order  to  catch  a  whale,  but  to  throw  away  a  whale  in  order 
to  catch  a  sprat — and  then  not  catch  it! 

The  old  notion  that,  as  between  nations  or  large  communities, 
A  can  use  military  force  to  obtain  from  B  advantages  which  he  could 
not  obtain  otherwise;  that  military  force  can  be  used  in  a  modern 
world  as  a  means  of  predatory  exploitation;  that  by  means  of  military 
force  a  people  can  live  as  parasites  by  the  exaction  of  tribute  in  some 
form  from  other  peoples,  is  at  last  being  recognized  as  not  justified 
by  the  facts  of  the  case.  The  commercial  and  financial  operations 
of  the  modern  world  are  essentially  mutual.  If  a  nation  is  to  find 
a  market,  that  market  must  be  a  trading  and  producing  people,  which 
means  that  the  market  must  be  a  competitor  in  some  sense.  If  a 
nation  is  to  have  sound  credit,  it  must  not  disturb  the  credit  of  other 
nations.  If  it  is  to  exact  its  own  half  of  the  economic  contract,  it 
must  fulfil  its  own  half.  If  it  is  to  have  a  field  for  its  investments,  it 
must  not  place  the  territories  in  which  it  hopes  to  find  that  investment 
at  any  financial  or  economic  disadvantage. 

These  propositions  are  not  new.  They  have  always  represented 
the  ideal  conditions  of  human  society.  But  they  were  never  prac- 
tically operative  while  distance  and  difficulties  of  communication  and 
ideas  shut  off  one  people  from  another.  But  the  conditions  to-day 
differ  from  the  conditions  even  as  we  knew  them  thirty  years  ago  by 
this  fact,  that  the  telegraph  has  made  us  financially  one,  and  that 
what  was  originally  merely  a  moral  fact — that  we  are  all  members  one 
of  another — has  become  a  very  patent  and  intrusive  financial  fact, 


WAR  AS  A  BUSINESS  VENTURE  61 

demonstrated  to  the  densest  of  us  by  the  simple  figures  of  the  bank 
rate. 

Never  was  it  so  possible  to  present  this  truth  in  the  simple  and 
dramatic  form  as  now,  when  every  time  that  a  loan  is  contracted, 
every  time  that  a  German  industrial  concern  sells  its  debentures  in 
London  or  establishes  a  factory  in  South  America,  there  is  an  inten- 
sification of  it.  My  claim  is  not  that  these  facts  are  new  so  much  as 
that  they  have  reached  a  condition  of  weight  in  the  practical  daily  affairs 
of  our  life  which  can  no  longer  be  ignored  in  our  practical  politics,  as 
the  recent  Berlin  crisis  so  abundantly  shows.  When  they  are  realized, 
a  diplomatic  revolution  to  the  advantage  of  all  becomes  inevitable. 

The  need  for  expressing  a  thing  in  headlines  has,  of  course, 
distorted  the  principles  which  I  have  attempted  to  elaborate:  "'War 
Now  Impossible,'  says  the  author  of  'The  Great  Illusion'"  is  the  sort 
of  headline  that  is  turning  my  hair  gray.  I  have  never  said,  of  course, 
that  war  is  impossible.  On  the  contrary,  given  the  prevailing  con- 
dition of  ignorance  concerning  the  elementary  economic  facts  of  the 
world,  war  is  even  likely. 

But,  it  will  be  asked,  why,  if  victory  can  be  of  no  possible 
advantage,  do  we  stand  in  danger  of  war,  since  in  every  war  someone 
must  be  the  .aggressor,  and  aggression  will  be  committed  only  in  the 
hope  of  obtaining  advantage  thereby?  For  this  reason:  not  neces- 
sarily his  real  interest,  but  what,  with  all  the  distortion  of  short  sight 
and  temper,  he  deems  his  interest  is  where  we  must  look  for  the 
motives  of  a  man's  conduct.  The  futility  of  war  will  not  stop  war 
until  general  opinion  has  recognized  the  futility.  And  European 
statecraft,  still  mumbling  the  obsolete  formulae  that  have  come  down 
to  us  from  conditions  that  long  since  ceased  to  exist,  seems  still  to  be 
in  sublime  ignorance  of  even  the  very  simple  facts  which  make  the 
conclusion  just  indicated  inevitable.  So  long  as  European  public 
opinion  as  a  whole  is  thus  ignorant,  war  is  quite  possible.  Europe 
may  make  the  enormous,  the  all  but  incalculable,  sacrifices  she  would 
certainly  have  to  make  in  order — not  for  the  first  time,  be  it  said — 
to  fight  for  an  illusion. 

2.    PERMANENT  SUBJUGATION  IMPOSSIBLE1 

The  sheer  military  subservience  of  a  strong  people  can  be  only 
temporary,  because  (a)  of  the  recuperative  capacity  shown  by  such 

1  By  Norman  Angell.  Adapted  from  America  and  the  New  World-State, 
pp.  268-72.  Published  by  G.  P.  Putnam's  Sons,  1915. 


62  ECONOMICS  OF  WAR 

conquered  states  in  the  past,  and  (b)  of  the  extreme  mutability  of 
alliances — it  being  a  possibly  temporary  alliance  which  gives  the 
preponderance  of  power  against  them. 

The  merely  temporary  effect  upon  a  virile  people  of  the  destruction 
of  their  armies  and  political  machinery,  the  artificial  and  unreal 
character  of  the  apparent"  wiping  off  the  map"  that  follows,  has  been 
dramatically  demonstrated  in  the  case  of  Germany  within  the  memory 
of  the  fathers  of  men  still  living.  In  the  first  few  years  of  the  nine- 
teenth century  Prussia  was  annihilated  as  a  military  force.  The 
army  was  destroyed  at  Jena  and  Auerstadt,  and  the  whole  country  was 
overrun  by  the  French.  By  the  Peace  of  Tilsit,  Prussia  was  deprived 
of  all  territory  west  of  the  Elbe  and  all  her  Polish  provinces,  of  the 
southern  part  of  West  Prussia,  of  Dantzig,  thus  losing  nearly  half  her 
population  and  area:  the  French  army  remained  in  occupation  until 
heavy  contributions  demanded  by  France  were  paid  and  by  the 
subsequent  treaty  the  Prussian  army  was  limited  to  not  more  than 
42,000  men,  and  she  was  forbidden  to  create  a  militia.  She  was 
broken,  apparently,  so  completely  that  even  some  five  years  later  she 
was  compelled  to  furnish,  at  Napoleon's  command,  a  contingent  for 
the  invasion  of  Russia.  The  German  states  were  weakened  and 
divided  by  all  the  statecraft  that  Napoleon  could  employ.  He  played 
upon  their  mutual  jealousies,  brought  some  of  them  into  alliance  with 
himself,  created  a  buffer  state  of  Westphalia,  Frenchified  many  of 
the  German  courts,  endowed  them  with  the  code  Napoleon.  Germany 
seemed  so  shattered  that  she  was  not  even  a  "geographical 
expression."  It  seemed,  indeed,  as  though  the  very  soul  of  the  people 
had  been  crushed,  and  that  the  moral  resistance  to  the  invader  had 
been  stamped  out,  for,  as  one  writer  has  said,  it  was  the  peculiar 
feature  of  the  Germany  which  Napoleon  overran  that  her  greatest 
men  were  either  indifferent,  like  Goethe,  or  else  gave  a  certain 
welcome  to  the  ideas  which  the  French  invaders  represented.  Yet 
with  this  unpromising  material  the  workmen  of  the  German  national 
renaissance  laboured  to  such  good  purpose  that  within  a  little 
more  than  five  years  of  the  humiliation  of  the  Peace  of  Tilsit, 
the  last  French  army  in  Germany  had  been  destroyed  and  Prussia 
was  able  finally  to  take  the  major  part  in  the  destruction  of  the 
Napoleonic,  and  in  the  restoration  of  the  German,  Empire.  It  was 
from  the  crushing  of  Prussia  after  Jena  that  dates  the  revival 
of  German  national  consciousness  and  the  desire  for  German 
unity. 


WAR  AS  A  BUSINESS  VENTURE  63 

Now  take  the  case  of  France  in  1870.  The  German  armies,  drawn 
from  states  which  within  the  memory  of  men  then  living  had  been 
mere  appanages  of  Napoleon,  which  as  a  matter  of  fact  had  furnished 
some  of  the  soldiers  of  his  armies,  had  crushed  the  armies  of  Louis 
Napoleon.  Not  merely  was  France  prostrated,  her  territory  in  the 
occupation  of  German  soldiers,  the  French  Empire  overthrown  and 
replaced  by  an  unstable  republic,  but  frightful  civil  conflicts  like  the 
Commune  had  divided  France  against  herself.  So  distraught,  indeed, 
was  she  that  Bismarck  had  almost  to  create  a  French  government  with 
which  to  treat  at  all.  What  was  at  the  time  an  immense  indemnity 
had  been  imposed  upon  her,  and  it  was  generally  believed  that  not  for 
generations  could  she  become  a  considerable  military  or  political 
factor  in  Europe  again.  Her  increase  of  population  was  feeble 
tending  to  stagnation;  her  political  institutions  were  unstable;  she 
was  torn  by  internal  dissensions;  and  yet,  as  we  know,  within  five 
years  of  the  conclusion  of  peace  France  had  already  sufficiently 
recuperated  to  become  a  cause  of  anxiety  to  Bismarck,  who  believed 
that  the  work  of  "destruction"  would  have  to  be  begun  all  over  again. 
And  if  one  goes  back  to  earlier  centuries,  to  the  France  of  Louis  XIV 
and  her  recovery  after  her  defeat  in  the  War  of  the  Austrian  Succes- 
sion, to  the  incredible  exhaustion  of  Prussia  in  wars  like  the  Thirty 
Years'  War,  when  her  population  was  cut  in  half,  or  the  Seven  Years' 
War,  it  is  the  same  story;  a  virile  people  cannot  be  "wiped  from  the 
map." 

3.    A  GERMAN  SOCIALIST  VIEW1 

ANNEXATIONS  AND  FOREIGN  TRADE 

In  the  struggle  for  the  restoration  of  peace  and  of  world-economics 
the  propaganda  for  a  "Peace  without  Annexation"  encounters  one 
main  objection.  A  state,  it  is  argued,  cannot  live  unless  it  possesses 
the  territories  necessary  for  its  supply  of  raw  material.  This  argument 
is  used  by  the  annexationists  of  Germany,  whose  lust  of  conquest 
extends  to  the  iron-ore  fields  of  French  Lorraine  and  the  coal  fields  of 
Russian  Poland.  Such  an  argument  rests  in  the  last  resort  upon  the 
idea  of  "autarchy"  or  self-sufficiency — the  idea  that  state  frontiers 
must  be  drawn  so  that  the  economic  areas  within  them  can  meet  their 

1  Adapted  from  an  article  which  the  New  Europe  (III  [1917],  4°8)  publishes — 
with  all  the  necessary  reservations — as  an  important  Socialist  contribution  to 
international  commerce.  The  article  first  appeared  in  the  Arbeiter-Zeitung,  June  19, 
1917. 


64  ECONOMICS  OF  WAR 

own  demand  for  raw  material  and  be  independent  of  other  countries. 
As  we  cannot  now  exist  without  the  products  of  southern  climes,  an 
ideal  state  of  this  kind  would  to-day  have  to  extend  from  the  Pole 
to  the  Equator.  Autarchy  is  unrealisable  unless  the  whole  world  is  to 
be  measured  out  anew.  It  is  obviously  an  advantage  to  any  state 
to  possess  as  much  raw  material  as  possible,  but  every  economic  area, 
however  richly  endowed  by  nature,  still  requires  to  import  from 
abroad.  It  is  therefore  a  question  whether  the  annexation  of  a  few 
more  sources  of  supply  could  ever  make  up  for  the  permanent  enmity 
of  all  neighbours  which  this  would  evoke. 

We  would  prefer  a  situation  in  which  neighboring  peoples  could 
use  their  national  mineral  wealth  for  mutual  exchange  and  the 
extension  of  culture.  Hue  draws  the  conclusion  that  when  we  see 
in  all  belligerent  countries  the  group  of  private  capitalists  who  exploit 
the  national  mineral  resources  demanding  a  "peace  imposed  by  force 
of  arms,"  we  must  recognize  that  the  most  effective  means  of  finally 
ending  such  intrigues  is  the  general  nationalisation  of  mines  and  of  the 
armament  industries  which  depend  so  closely  upon  them.  But  in 
reality  the  nations  need  nothing  save  the  establishment  of  complete 
freedom  of  intercourse  between  all  economic  territories  in  the  world. 

4.    TRADE  WILL  FLOW  BACK  TO  ITS  NATURAL 
CHANNELS1 

Before  the  war  Germany  was  producing  about  28,000,000  tons  of 
iron  ore  a  year.  Of  this,  about  21,000,000  tons  came  from  Lorraine. 
Germany  also  imported  ore  from  her  immediate  neighbors  and  lately 
from  Sweden  as  well. 

Suppose  she  loses  Lorraine  at  the  end  of  the  war.  She  will  lose 
about  three-fourths  of  her  annual  production  of  iron  ore.  How  will 
the  deficiency  be  supplied  ?  Partly  by  a  better  use  of  the  remaining 
resources  in  the  Rhineland  and  elsewhere,  but  largely,  very  largely, 
by  increased  imports.  Assume  for  the  moment  that  Germany 
becomes  unable  to  buy  iron  from  a  restored  French  Lorraine ;  the  ore 
or  metal  will  most  likely  have  to  come  from  Sweden,  perhaps  even 
from  South  America.  Thus  we  should  have  Germany  buying  ore 
and  iron,  at  competitive  prices,  in  markets  which  have  hitherto  helped 
to  relieve  the  shortage  in  other  countries.  England  would  feel  the 

1  By  L.  W.  S.  Adapted  from  "Lorraine,  Coal  and  Iron,"  in  New  Republic 
(September  8,  1917),  pp.  153-54- 


WAR  AS  A  BUSINESS  VENTURE  '   65 

pressure  of  these  German  orders,  and  so  would  Belgium.  Even  the 
United  States  might  be  affected  by  this  forced  reorganization  of 
the  world's  iron  market. 

Suppose  further  that  France,  regaining  Alsace-Lorraine  at  the  end 
of  the  war,  either  cannot  get  or  will  not  take  coal  from  Germany. 
Before  the  war  France  was  just  able  to  make  the  best  economic  use 
of  her  iron  ore.  She  was  producing  about  40,000,000  tons  of  coal  a 
year  in  normal  times.  To  this  will  be  added  not  more  than  3,500,000 
a  year  from  the  mines  of  Lorraine.  How  will  she  manage  to  handle 
the  additional  21,000,000  tons  of  Lorraine  iron? 

By  getting  coal  from  England?  Until  the  war  came  England 
and  Germany  were  both  supplying  coal  to  the  furnaces  of  Northern 
France.  England  was  supplying  many  places  on  the  Continent,  but 
not  Lorraine,  not  Meurthe-et-Moselle,  or  Meuse. 

How  can  this  coal,  which  before  the  war  did  not  compete  success- 
fully with  German  coal  in  Lorraine,  Meurthe-et-Moselle,  or  Meuse, 
be  brought  to  this  region  after  the  war  at  prices  which  will  make  the 
iron  industry  profitable?  Only  by  lowering  coal-transportation 
costs,  or  by  devising  a  system  of  shipping  Lorraine  iron  ore,  at  low 
cost,  northward  to  meet  English  coal  so  near  home  that  its  price  is 
still  low.  No  doubt  such  a  system  of  transporting  coal  and  ore  can 
finally  be  evolved  and  made  to  work  satisfactorily.  How  long  would 
this  take  ?  At  least  ten  years.  At  present  the  economist,  studying 
the  problem  of  iron  in  Lorraine  and  the  two  departments,  must 
deal  first  with  conditions  as  they  are,  not  as  they  may  be  in  the 
future. 

Suppose  we  nevertheless  look  into  the  future  and  assume  that 
these  difficulties  have  been  overcome.  There  remains  the  fact  that 
France  would  have  to  find  a  market  for  her  iron  outside  her  frontiers. 
What  country  could  make  use  of  the  iron  gained  by  smelting  the 
21,000,000  tons  of  ore  thrown  suddenly  into  the  furnaces  of  France? 
Would  England  take  this  iron  in  exchange  for  her  coal  ?  Before  the 
war  the  English  iron  industry  was  consuming  every  year  about 
23,000,000  tons  of  ore,  of  which  nearly  16,000,000  tons  were  mined  in 
England  and  approximately  7,000,000  were  imported.  Even  if 
England  were  in  future  to  take  all  her  imported  ore  from  France, 
France  would  still  have  on  her  hands  a  surplus  of  14,000,000  tons, 
either  to  be  smelted  and  used  at  home  or  exported. 

Where  could  French  iron  ore  go  ?  To  those  countries  which  will 
lose  part  of  their  ore  supplies  when  Germany  outbuys  them  in  their 


66  ECONOMICS  OF  WAR 

former  markets  ?  It  is  doubtful  whether  this  is  a  satisfactory  answer, 
for  the  simple  reason  that  Lorraine  iron  may  be  either  unsuitable  for 
the  particular  purposes  of  this  demand,  or  else,  as  is  more  likely,  too 
expensive  because  of  transportation  cost. 

The  only  natural  market  where  the  Lorraine  iron  ore  or  the  product 
of  it  can  be  disposed  of  cheaply  and  quickly  will  be  Germany.  In 
case  she  loses  Lorraine,  Germany  also  may  soon  realize  the  force  of 
this  truth  and  be  willing  to  go  to  Lorraine  for  her  iron  ore.  She  may 
be  willing  to  give  in  exchange  the  coal  needed  by  France.  A  com- 
mercial arrangement  providing  for  this  exchange,  giving  Lorraine, 
Meurthe-et-Moselle,  and  Meuse  a  market  for  their  iron  ore  and 
Germany  a  market  for  her  coal  must  result  from  the  transfer  of 
Alsace-Lorraine  from  the  German  Empire  to  the  French  Republic. 
What  other  solution  is  possible,  except  the  creation  of  an  independent 
economic  unit  out  of  the  two  provinces  ? 

5.    LIMITS  IMPOSED  IN  THE  HAGUE  CONVENTIONS 

Article  XL VI.  Family  honor  and  rights,  the  lives  of  persons, 
and  private  property,  as  well  as  religious  convictions  and  practice, 
must  be  respected.  Private  property  cannot  be  confiscated. 

Article  LII.  Requisitions  in  kind  "and  services  shall  not  be 
demanded  from  municipalities  or  inhabitants  except  for  the  needs 
of  the  army  of  occupation.  They  shall  be  in  proportion  to  the 
resources  of  the  country,  and  of  such  a  nature  as  not  to  involve  the 
inhabitants  in  the  obligation  of  taking  part  in  military  operations 
against  their  own  country.  Such  requisitions  and  services  shall  only 
be  demanded  on  the  authority  of  the  commander  in  the  locality 
occupied.  Contributions  in  kind  shall  as  far  as  possible  be  paid  for 
in  cash;  if  not,  a  receipt  shall  be  given,  and  the  payment  of  the 
amount  due  shall  be  made  as  soon  as  possible. 

Article  LIII.  An  army  of  occupation  can  only  take  possession 
of  cash,  funds,  and  realizable  securities  which  are  strictly  the  property 
of  the  State,  depots  of  arms,  means  of  transport,  stores  and  supplies, 
and,  generally,  all  movable  property  belonging  to  the  State  which 
may  be  used  for  military  operations.  All  appliances,  whether  on  land , 
at  sea,  or  in  the  air,  adapted  for  the  transmission  of  news  or  for  the . 
transport  of  persons  or  things,  exclusive  of  cases  governed  by  naval 
law,  depots  of  arms,  and,  generally,  all  kinds  of  ammunition  of  war, 
may  be  seized,  even  if  they  belong  to  private  individuals,  but  must 
be  restored  and  compensation  fixed  when  peace  is  made. 


WAR  AS  A  BUSINESS  VENTURE  67 

VI.    The  Profit  Side 

i.    GERMANY  READY  TO  ADMINISTER  CAPTURED 
WEALTH1 

I.      THE   ENEMY  BEARS   THE   WHOLE  BURDEN2 

In  the  event  of  a  peace  favourable  to  Germany  our  enemies  will 
have  to  pay: 

a)  The  war  expenditure,  including  federal  and  local  expendi- 

ture, about $30,000,000,000 

b)  The  expenditure  on  pensions  and  armaments,  viz.,  about 

$500,000,000  annually  for  about  40  years,  represent- 
ing a  capital  value  of  about 11,000,000,000 

c)  Losses  in  the  colonies 1,250,000,000 

d)  Private  losses 7,500,000,000 


Grand  total $49,750,000,000 

This  is  equivalent  to  a  service  of  about  $3,250,000,000  per  annum. 

Such  enormous  sums,  the  author  observes,  cannot,  of  course,  be 
paid  cash  down,  nor  would  it  be  desirable  if  they  could.  Germany 
would  have  to  obtain  her  indemnities  by  the  exploitation  of  the 
conquered  territory,  principally  by  taking  possession  of  all  public  and 
private  property,  which  can  be  profitably  administered  by  the  state, 
as  follows:  A.  Railways,  canals,  ports,  warehouses,  etc.  B.  Natural 
resources,  such  as  coal,  ore,  salt,  petroleum,  etc.  C.  Land  (forests)* 
estates,  and  all  land  suitable  for  the  settlement  of  German  farmers. 

On  this  basis  Germany  would  be  interested  in  the  following: 

a)  Belgium:    railways,   coal    mines,   and   deposits,    other 

mines,  state  land,  etc.,  total $  6,000,000,000 

b)  France:  railways,  coal  mines,  etc.,  iron  fields  in  Lorraine 

(Briey  and  Longwy),  total 5,000,000,000 

c)  Courland  and  Lithuania:    railways   (one-fifth),  forest 

land  and  land  fit  for  settlement  (four-fifths),  total .  . .        250,000,000 

1  By  K.  A.  Fischer.     Adapted  from  Germany's  Future  as  the  Result  of  a  Good 
or  a  Bad  Peace.    This  selection  is  from  a  pamphlet  written  by  four  Prussian 
officials  and  distributed  by  order  of  the  War  Office  among  the  German  troops. 
Printed  in  the  New  Europe,  V,  87-89. 

2  The  sums  mentioned  are  stated  in  the  original  in  round  numbers  (one  or 
two  digits)  indicating  rough  estimates.    In  translating  them  into  American  money 
the  editors  have  kept  the  figures  round  instead  of  translating  accurately  the  sums 
given  in  the  original. 


68  ECONOMICS  OF  WAR 

d)  Roumania:    oil  wells,  which  could  be  pledged  to  and 

administered  by  Germany,  at  least  in  part 1,250,000,000 

e)  Poland :  (no  "  property  suitable  for  state  administration  " 

is  specified  in  the  case  of  Poland,  but  as  two  lines  are 
given  to  the  heading,  something  appears  to  have 
been  taken  out  of  the  text  on  second  thoughts) i  ,500,000,000 

Grand  total $14,000,000,000 

To  the  above  may  be  added: 

/)   Livonia  and  Esthonia:  railways  (one-third)  forest  land 

and  land  for  settlements  (two-thirds) $      240,000,000 

II.      COLONIAL  BOOTY 

The  property  specified  above  thus  accounts  for  only  about 
$14,000,000,000  of  the  required  $50,750,000,000,  leaving  $36,000,000,- 
ooo,  more  to  be  covered.  In  view  of  the  great  demand  for  cargo  space 
which  may  be  expected  after  the  war,  the  value  of  the  part  of  the 
enemy  merchant  navies  ceded  to  us  may  be  estimated  at  about 
$1,000,000,000.  If  the  Suez  Canal,  where  shipping  dues  are  high, 
is  put  under  German  administration,  this  will  mean  a  further  $240,- 
000,000.  Moreover,  in  the  event  of  a  favourable  peace,  the  addition 
to  Germany's  African  colonies  of  the  Portuguese  and  Belgian  colonial 
possessions,  as  well  as  of  large  sections  of  the  British  and  French,  and 
conceivably  the  Italian  also,  will  be  a  necessity  (a)  from  the  military 
point  of  view,  France  having  so  far  sent  about  350,000-400,000 
coloured  troops  from  North  and  West  Africa  against  us;  (6)  from  the 
naval  point  of  view,  as  Germany  would  then  have  new  naval  bases; 
(c)  from  the  economic  point  of  view,  to  safeguard  our  supply  of  raw 
materials.  This  extension  of  our  African  colonial  empire  may  be 
estimated  at  about  $2,400,000,000.  The  33  billions  still  required 
must  be  paid  for  primarily  by  the  import  of  raw  material,  half- 
products,  and  foodstuffs  required  by  our  national  economy.  In  1913 
Germany  imported  $2,142,700,000  worth  of  these  things,  and  in 
consequence  of  the  great  destruction  of  stocks  our  requirements  after 
the  war  will  be  much  greater  and  may  well  be  put  at  $3,000,000,000- 
$3,800,000,000  for  a  number  of  years.  Before  the  war  England, 
France,  and  Russia,  with  their  colonies,  supplied  us  with  about  one- 
third  of  what  we  needed,  and  they  will  have  to  give  us  about  a  quarter 
in  future  also.  The  remainder  of  our  imports  must  be  procured  from 
other  countries  and  paid  for  with  enemy  money. 


WAR  AS  A  BUSINESS  VENTURE  69 

III.      PLUNDER  FOR   GERMANY'S   ALLIES 

It  must  be  borne  in  mind  that  the  figures  given  above  refer  to  the 
war  expenditures  of  the  German  Empire  only;  the  war  expenditures 
and  losses  of  our  Allies  amount  to  far  more  than  $38,000,000,000,  in 
addition,  and  will  also  have  to  be  met  by  the  enemy.  Austria-Hungary 
will  look  principally  to  Italy  and  Serbia,  and  Bulgaria  to  Serbia  and 
Roumania,  for  this  purpose,  while  Turkey  will  insist  in  the  first 
instance  on  the  restoration  of  Egypt  and  Tripoli,  which  belong 
to  her. 

A  peace  by  which  we  are  made  to  bear  our  own  burdens  condemns 
us  to  an  inevitable  decline  and  to  a  permanent  inferiority  to  America, 
Japan,  England,  and  Russia.  England  will  still  continue  in  a  position 
to  exploit  half  the  world  in  the  shape  of  her  colonies;  she  will  make 
good  all  her  losses  from  this  inexhaustible  source  of  supply;  she  will 
oust  us  from  every  market  by  every  possible  device;  she  will  continue 
to  rule  the  seas  and  live  freely  in  them.  Russia,  again,  whose  strength 
is  founded  entirely  on  her  dominion  over  vast  areas  and  their  increas- 
ing colonization  by  the  peasantry,  is  in  such  a  primitive  stage  of 
economic  development  that  she  cannot  be  shaken  at  all  so  long  as  she 
remains  in  possession  of  these  areas;  she  will  very  rapidly  develop 
her  industry,  her  agriculture,  and  her  means  of  communication, 
exploit  her  natural  resources,  and  in  a  few  decades  herself  grow  and 
work  up  almost  all  classes  of  raw  material,  including  cotton.  At  all 
this  Germany  will  be  compelled  to  look  impotently  on. 

2.     SYSTEMATIC  EXPLOITATION:    THE 
"RATHENAU  PLAN"1 

The  German  authorities  have  systematically  exploited  Belgium 
and  the  other  lands  conquered  by  them.  This  exploitation  for  the 
benefit  of  German  industry  has  been  going  on  from  the  very  first 
days  of  the  occupation  in  each  of  the  conquered  territories.  It  is 
an  outgrowth  from  the  "Rathenau  Plan,"  which  has  made  it  possible 
for  Germany  to  continue  the  war. 

This  plan,  which  was  suggested  early  in  August,  1914,  by  Dr. 
Walter  Rathenau,  president  of  the  General  Electric  Company  of 
Germany,  was  to  establish  a  Bureau  of  Raw  Materials  for  the  War. 

1  Adapted  from  German  Treatment  of  Conquered  Territory.  This  was  a 
pamphlet  issued  by  the  United  States  Committee  on  Public  Information,  March, 
1918. 


70  ECONOMICS  OF  WAR 

It  was  made  a  part  of  the  Ministry  of  War,  and  one  of  its  problems 
was  as  follows: 

The  occupation  of  Belgium,  of  the  most  valuable  industrial  parts  of 
France,  as  well  as  of  parts  of  Russia,  made  a  new  task  for  the  organization. 
It  was  necessary  to  make  use  of  the  stocks  of  raw  material  of  these  three 
territories  for  the  domestic  economy  of  the  war,  to  use,  especially,  the  stores 
of  wool  found  at  the  centers  of  the  continental  wool  market.  Valuable 
stocks  of  rubber  and  of  saltpeter  were  to  be  used  for  the  profit  of  the  manu- 
facturer at  home.  The  difficulties  that  are  met  with  in  keeping  to  the  rules 
of  war  while  making  these  requisitions  have  been  overcome.  A  system 
of  collecting  stations,  of  depots,  and  of  organizations  for  distribution  was 
arranged  which  solved  the  difficulties  of  transportation,  infused  new  blood 
into  industry  at  home,  and  gave  it  a  firmer  and  more  secure  basis.  [This 
quotation  is  from  the  report  of  a  lecture  by  Dr.  Rathenau  published  in  the 
Zeitschrift  des  oesterreichischen  Ingenieur-  und  Architektenvereines  of  April  21, 
1916.] 

For  the  conduct  of  the  war  and  for  her  manufactures  Germany 
needs  vast  stocks  of  metal.  The  Rathenau  Plan,  under  the  direc- 
tion of  the  President  of  the  General  Electric  Company,  was  directed 
especially  toward  supplying  this  need.  Every  scrap  of  metal  in  the 
conquered  countries  that  could  possibly  be  seized  has  been  con- 
fiscated. The  ordinance  below  is  given  here  as  an  example  of  the 
thoroughness  of  the  system  of  requisitions.  The  prices  to  be  paid 
were  entirely  too  low  and  the  sixth  section  shows  that  the  German 
authorities  did  not  expect  that  the  owners  of  the  property  would  be 
satisfied  with  the  price  that  was  to  be  paid. 

The  following  ordinance  was  issued  at  Brussels  under  date  of 
December  13,  1916: 

Section  i.  The  following  designated  objects  are  hereby  seized  and 
must  be  delivered. 

Section  2.  Movable  and  fixed  household  articles  made  of  copper,  tin, 
nickel,  brass,  bronze,  or  tombac,  whatever  their  state: 

1.  Kitchen  utensils,  metal  ware,  and  household  utensils,  except  cutlery. 

2.  Wash  basins,  bathtubs,  warm-water  heaters,  and  reservoirs. 

3.  Individual  or  firm  name-plates  in  and  on  the  houses,  door-knobs, 
knockers,  and  metal  decorations  on  doors  and  carriages  not  necessary  for 
locking. 

4.  Curtain  rods  and  holders  and  stair-carpet  fixtures. 
.5.  Scales. 

6.  Ah"  other  household  articles  or  adornments  made  of  tin. 


WAR  AS  A  BUSINESS  VENTURE  71 

The  articles  included  under  the  numerals  1-6  are  subject  to  seizure  and 
delivery  even  when  not  contained  in  households  in  the  narrow  sense,  but 
in  other  inhabited  or  uninhabited  buildings  and  rooms  (e.g.,  offices  of 
authorities,  office  rooms  in  factories,  and  entries). 

Section  3.     Exempt  from  seizure  and  delivery: 

1 .  Articles  on  and  in  churches  and  other  buildings  and  rooms  dedicated 
to  religious  services. 

2.  Articles  in  hospitals  and  clinics,  as  well  as  in  the  private  offices  of 
physicians,  apothecaries,  and  healers,  so  far  as  these  articles  are  essential 
to  the  care  of  the  sick  or  the  practise  of  medicine  and  cannot  be  replaced. 

3.  Articles  in  public  buildings. 

4.  Articles  which  are  part  of  commercial  or  industrial  stores  either 
designated  for  sale  or  useful  in  the  business.     For  these  articles  a  special 
decree  is  enacted. 

Section  5.  Obligation  to  deliver. — Articles  of  artistic  or  historic  value, 
if  so  recognized  by  the  Bureau  of  Delivery,  need  not  be  delivered. 

The  Bureau  of  Delivery  may  for  unusual  cause  grant  exemption  from 
delivery. 

Section  6.  Indemnity. — The  following  prices  will  be  paid  for  the 
delivered  articles: 

Copper,  per  kilo. . .   4       francs        Brass 3  francs 

Tin 7 . 50      "  Bronze 3       u 

Nickel 13  "  Tombac 3      " 

The  payment  will  take  place  on  the  basis  of  the  estimate  made  by  the 
Bureau  of  Delivery.  Payment  will  be  made  to  the  deliverer  without 
question  of  his  ownership. 

Section  7.    Refers  to  persons  and  corporations  affected  by  this  decree. 

Section  8.  Confiscation. — [Failure  to  comply  with  the  provisions  of 
the  decree  entails  confiscation.] 

Section  9.  Co-operation  of  communities. — [Local  authorities  ordered 
to  co-operate  in  execution  of  this  order.] 

A  list  of  articles  acquired  by  confiscation  or  forced  sale  in  Belgium, 
compiled  from  the  official  ordinances,  includes: 
I.  Minerals  and  Metals  (48  items) 
II.  Chemicals  (19  items) 

III.  Machinery,  etc.  (18  items) 

IV.  Food  (9  items,  including  all  bread  grains  as  one  item) 
V.  Clothing  (18  items) 

VI.  Textiles  (37  items) 

VII.  Household  articles  (when  made  of  copper,  bronze,  brass, 
tombac,  nickel,  or  tin,  34  items) 


72  ECONOMICS  OF  WAR 

VIII.  Old  material  (20  items) 
IX.  Oils  and  explosives  (n  items) 

X.  Metal  products  for  industrial  establishments  (33  items) 
XI.  Medical  supplies  (6  items) 
XII.  Miscellaneous  (24  items) 

(Total,  277  items) 

In  addition,  the  German  authorities  regulate  and  control  the  sale 
of  most  of  the  wares  which  have  not  been  confiscated  by  them. 

Some  industries  which  were  not  directly  useful  to  the  Germans 
had  been  allowed  to  resume  work  in  whole  or  in  part.  In  doing  this 
the  German  officials  in  Belgium  had  aroused  anger  in  Germany,  as 
the  Belgian  industries  competed  with  German  manufacturers.  The 
latter  are  not  willing  to  permit  any  competition  on  the  part  of  the 
conquered  peoples,  as  is  shown  by  the  comment  on  the  attempt  to 
renew  the  making  of  glass  in  Belgium. 

To  quote  Dr.  Goetze,  head  of  the  union  of  glassmakers  in  Ger- 
many: 

It  had  become  vital  before  the  war  to  the  German  manufacturers  of 
glasswares  that  the  Belgian  manufactures  should  be  stopped  from  going  to 
neutral  markets,  and  it  must  be  admitted  that  the  German  Civil  Adminis- 
tration has  fully  recognized  the  necessity  of  arranging  this  matter  according 
to  the  demands  of  the  German  industry,  and  that  it  has  taken  suitable 
action. 

In  spite  of  this  some  Belgian  shops  were  able  to  do  some  exporting 
and  had  affected  the  market  price.  "Measures  must  be  taken  to 
stop  this." 

Because  of  the  attitude  of  the  German  manufacturers  the  Ger- 
man authorities  in  Belgium  were  in  a  very  difficult  situation.  The 
German  government  felt  that  they  must  make  an  explanation  to 
the  German  public  and  accordingly  the  following  "inspired"  article 
was  published  in  a  paper. 

The  opinion  seems  to  be  widespread  in  many  circles  at  home  that  the 
scepter  was  wielded  too  mildly  in  the  conquered  country;  voices  have  been 
heard  which  cry,  "Become  harsh,"  which  raise  the  reproach  that  the 
enemy's  country  is  being  treated  as  if  it  were  our  own;  voices  which  blame 
the  German  Government  in  Belgium  for  troubling  itself  about  the  revival 
of  trade  and  industry,  instead  of  decimating  the  whole  country  economically 
and  giving  the  death-blow  to  its  power  of  competition.  Such  criticisms 
exhibit  a  shortsighted  judgment  of  the  tasks  which  are  to  be  carried  out  in 
Belgium  and  of  what  has  been  accomplished  hitherto.  All  exaggerated 


WAR  AS  A  BUSINESS  VENTURE  73 

mildness,  all  sentimentality,  must  be  avoided  and  are  being  avoided,  but 
true  strength  will  always  be  just;  severe  at  need,  but  not  unnecessarily 
harsh.  With  such  a  principle  the  conqueror  only  pursues  his  own  deepest 
interests.  Or  should  he,  perchance,  by  vexatious  and  arbitrary  treatment, 
drive  the  already  grievously  incensed  nation,  in  the  rear  of  his  own  army,  to 
despair?  The  German  Government  in  Belgium  does  all  it  possibly  can 
to  set  trade  and  traffic  going  again  and  to  provide  earnings  and  bread  for 
the  working  classes,  not  in  order  to  pay  Belgium  loving  services  thereby, 
but  in  order  to  prevent  famine  and  disease  behind  the  front  of  our  army  from 
endangering  their  safety  and  health.  It  has  therefore  willingly  lent  its  hand 
to  the  procuring  of  food  for  the  distressed  population  from  neutral  countries 
in  order  to  spare  our  home  supplies  and  to  save  our  own  troops  from  priva- 
tions. It  has  permitted  the  needful  supplies  of  coal  to  be  forwarded. 
Competition  against  our  home  production  cannot  arise  thereby,  for  only  so 
much  can  be  forwarded  to  Belgium  as  is  necessary  for  the  bare  needs  of  its 
freezing  people  and  of  its  industry,  which  is  prolonging  a  painful  existence. 
With  farsighted  understanding  the  Government  is  also  endeavoring  to 
introduce  institutions  for  social  amelioration,  which  the  Belgian  Govern- 
ment— perhaps  out  of  regard  for  the  increase  of  the  costs  of  production 
which  would  have  resulted  therefrom — had  hitherto  neglected.  If  the  labor 
and  productivity  in  the  country  is  thus  gradually  increased  again  by  this 
means,  ^hen  the  occupying  troops,  as  well  as  the  country,  get  the  advantage 
of  this,  for  they  also  have  to  resort  to  the  products  of  the  country  for  their 
needs.  And  then,  how  is  Belgium  to  provide  the  financial  payments  which 
are  imposed  upon  her  if  her  vital  energy  is  sapped  ?  [From  the  Nord- 
deutsche  allgemeine  Zeitung,  December  29,  1914.] 

The  success  of  the  Rathenau  Plan  can  also  be  seen  in  the  following 
quotations  from  other  papers: 

There  have  been  great  difficulties,  as  far  as  raw  material,  copper,  tin, 
etc.,  are  concerned,  in  keeping  up  manufacturing  in  the  German  shops  for 
making  machine  tools.  Thanks  to  the  confiscations,  the  army  adminis- 
tration is  certain  not  to  run  out  of  the  necessary  metals  before  the  end  of 
the  war.  [From  Der  praktische  Machinenkonstrukter,  October  24,  1915; 
quoted  in  Informations  Beiges,  No.  488.] 

After  the  war  the  French  and  the  Belgian  competition  will  no  longer 
be  dangerous  because  of  the  destruction  brought  about  by  the  war.  [From 
Exports,  December  28,  1915;  quoted  in  Informations  Beiges,  No.  488.] 

Most  instructive  is  part  of  an  article  by  Herr  Ganghofer,  con- 
taining some  frank  statements  which  he  was  not  allowed  to  reprint 
in  his  book  Journey  to  the  German  Front,  which  he  published  later: 

All  the  work  is  done  there  on  the  principle  that  as  little  as  possible 
of  what  the  army  needs  is  to  be  brought  from  Germany,  that  as  much  as 


74  ECONOMICS  OF  WAR 

possible  is  to  be  got  from  the  conquered  enemy  country,  and  that  everything 
that  is  necessary  for  the  army  or  useful  to  Germany  is  to  be  taken  to 
Germany.  For  three  months  about  four-fifths  of  the  army's  needs  were 
supplied  by  the  conquered  country.  Even  now,  although  the  exhausted 
sources  in  the  land  occupied  by  us  are  beginning  to  yield  less  abundantly, 
the  conquered  territory  is  still  supplying  two-thirds  of  the  needs  of  the 
German  army  in  the  West.  Because  of  this,  for  the  last  four  months  the 
German  Empire  has  saved  an  average  of  3,500,000  to  4,000,000  marks  a  day. 
This  profit  which  the  Germans  have  secured  by  their  victory  is  very  greatly 
increased  by  another  means.  That  is  the  economic  war  which,  in  accordance 
with  the  rules  of  international  law,  is  being  carried  on  against  the  conquered 
land  by  the  exhaustion  of  the  goods  which  belong  to  the  State,  which  are 
being  carried  to  Germany  from  Belgium  and  Northern  France.  What 
Germany  saves  and  gains  by  this  economic  war,  carried  on  in  a  business-like 
way,  can  be  reckoned  at  a  further  6,000,000  to  7,000,000  marks  a  day. 
Thus  the  entire  profit  which  the  German  Empire  has  made  behind  its 
Western  Front  since  the  beginning  of  the  war  can  be  estimated  at  about 
2,000,000,000  marks.  [From  the  Miinchner  neueste  Nachrichten,  February 
26,  1915.] 

3.     GERMAN  GAINS  IN  THE  EAST1 

Germany,  through  her  conquests  in  the  East,  is  endeavoring, 
under  the  leadership  of  her  economists  and  industrialists,  to  build  up 
a  great  economic  empire,  which  will  be  eventually,  as  far  as  possible, 
self-sufficient.  She  is  aiming  to  acquire  control  over  sources  of  raw 
material  so  that  in  the  end  her  industries  may  not  be  forced  to  rely 
on  foreign  sources  for  their  supplies.  In  other  words,  she  is  trying 
to  weld  into  a  solid  block  of  territory  an  empire  similar  to  that  now 
possessed  by  England  in  the  form  of  scattered  possessions  held 
together  by  her  fleet.  The  acquisition  of  Western  Russia  and  a  large 
part  of  the  Balkans,  which  has  already  been  practically  accomplished, 
is  in  reality  only  the  beginning  of  the  German  plan.  Nevertheless  the 
control  of  these  regions  brings  to  Germany  very  important  economic 
advantages,  which  it  is  interesting  to  examine  in  detail. 

I.      UKRAINIA 

By  far  the  most  valuable  region  of  Russia  from  an  economic 
standpoint  is  that  lying  between  Poland  and  the  Sea  of  Azov,  com- 
prising the  valleys  of  the  rivers  flowing  into  the  Black  Sea.  This  is 

1  Adapted  from  "The  Resources  of  an  Industrial  Empire  in  Mittel-Europa," 
The  Americas,  IV,  No.  7,  pp.  1-7.  Copyright  by  the  National  City  Bank  of  New 
York,  1918. 


WAR  AS  A  BUSINESS  VENTURE  75 

the  region  recently  erected  into  the  new  state  of  Ukrainia,  nominally 
independent.  German  troops  are  now  in  control  of  practically  the 
whole  of  this  region,  and  under  the  treaty  of  peace  signed  between 
the  Teutonic  powers  and  the  Ukrainian  representatives,  Ukrainian 
products  are  to  be  exported  freely  to  Germany  and  her  Allies. 

The  Ukraine  region  includes  agricultural,  industrial,  and  mining 
districts,  and  includes  among  its  products  foodstuffs  such  as  grain, 
sugar,  grapes,  and  tobacco;  textile  materials  such  as  hemp  and  wool; 
ores  such  as  iron,  manganese,  and  phosphates,  as  well  as  coal,  both 
anthracite  and  bituminous.  The  industries  include  iron  and  steel 
manufacture,  textile  spinning  and  weaving,  and  sugar  refining. 
Ukrainia  is  one  of  the  most  densely  populated  parts  of  Russia,  avera- 
ging between  150  and  200  inhabitants  to  the  square  mile,  and  contains 
a  number  of  large  cities. 

The  four  provinces  of  Kiev,  Podolia,  Poltava,  and  Kharkov  before 
the  war  furnished  also  a  large  part  of  the  surplus  wheat  which  was 
exported  from  Odessa  and  the  other  Black  Sea  ports.  Phosphate 
rock,  it  is  to  be  noted,  one  of  the  necessary  ingredients  of  fertilizers, 
is  found  in  quantity  in  Podolia,  Bessarabia,  and  Kursk. 

Should  German  enterprise  undertake  to  develop  this  region, 
applying  scientific  methods,  it  might  be  possible  to  increase  the  crops 
so  as  to  go  far  toward  supplying  the  needs  of  Germany.  German 
imports  of  wheat  before  the  war  (in  1913)  were  73,766,000  bushels. 
The  exports  of  all  Russia  in  1913  were  122,336,000  bushels,  of  which  a 
considerable  part  came  from  the  Ukrainian  provinces.  With  the 
disorganization  of  the  revolution  the  output  has  declined  greatly,  and 
it  is  not  believed  that  it  will  be  possible  for  Germany  to  obtain  large 
supplies  from  the  1917-18  crop.  Reorganization  must  be  a  process  of 
several  years. 

The  black-earth  region  also  produces  a  large  exportable  surplus 
of  beet  sugar,  the  total  area  planted  in  beets  normally  being  nearly 
2,000,000  acres.  Sugar  factories  in  the  provinces  of  Kiev,  Podolia, 
and  Volhynia  produced  in  1914-15  about  1,060,000  tons  of  sugar. 
Recently,  owing  to  the  breakdown  of  the  transportation  system  and 
the  difficulty  of  obtaining  oil,  the  factories  have  been  forced  to  shut 
down.  The  surplus  stocks  of  sugar  are  believed  largely  to  have  been 
used  up.  The  sugar  crop  represents  a  large  item  in  the  wealth  of  this 
part  of  Russia  and  in  its  exports.  Germany,  however,  has  herself 
normally  a  surplus  production  of  sugar  and  hence  would  be  unlikely 
to  import  any  of  the  Ukrainian  crop. 


76  ECONOMICS  OF  WAR 

In  the  more  southerly  part  of  this  region,  in  the  provinces  of 
Bessarabia  and  Kherson,  corn  is  raised.  The  climate  is  mild  and  vast 
areas  are  covered  with  vineyards  and  fruit  orchards.  Market 
gardening  is"  also  carried  on  by  Bulgarians,  while  a  fine  grade  of 
tobacco  is  raised  in  Poltava  and  in  Taurida  on  the  Black  Sea.  Ger- 
many before  the  war  raised  only  a  fraction  of  the  tobacco  she  con- 
sumed, and  imported  91,385  tons,  in  1913.  Some  of  this  was  imported 
from  Austria-Hungary,  but  the  Austrian  production  also  fell  short  of 
supplying  home  demands. 

The  annual  crop  of  hemp  in  the  Ukraine  area  approximates 
80,000  tons  of  fiber.  For  years  the  greater  part  of  this  was  exported 
to  Germany.  German  factories  are  equipped  to  manufacture  hemp 
yarn,  which  is  made  into  cordage,  bagging,  netting,  etc.  Hemp  will 
presumably  play  a  large  part  in  German  economics  in  case  the  supply 
of  jute  is  permanently  cut  off. 

The  mineral  resources  of  the  Ukraine  are  also  of  very  great 
economic  importance.  The  iron  mines  of  Krivoi  Rog,  in  the  provinces 
of  Ekaterinoslav  and  Kherson,  are  among  the  richest  in  Europe,  and 
are  strategically  situated  within  a  short  distance  of  the  great  coal- 
mining area  of  the  Donetz  basin.  They  are  also  within  easy  reach  of 
the  Black  Sea.  A  large  iron  and  steel  industry,  supplying  before  the 
war  70  per  cent  of  the  entire  Russian  production,  has  been  developed 
at  Ekaterinoslav  and  Kiev.  British,  French,  and  Belgian  capital  was 
largely  instrumental  in  building  up  this  industry.  To  place  the 
output  back  at  the  point  it  had  reached  before  the  war  would  neces- 
sitate a  reorganization  of  the  mills  and  especially  of  the  railroads 
supplying  the  coal,  and  a  complete  stabilization  of  the  government 
in  this  district,  where  affairs  have  been  very  chaotic. 

The  Donetz  coal  mines,  east  of  the  Krivoi  Rog  district,  have  for 
some  years  been  the  chief  source  of  supply  for  all  Russia.  The 
Donetz  mines,  with  intensive  development,  are  also  believed  to  "be 
capable  of  greatly  increased  production,  thus  permitting  of  a  con- 
siderable exportation  to  the  Central  Powers.  The  reserves  are 
enormous  and  have  been  estimated  as  greater  than  those  of  the 
United  States.  Another  estimate  puts  the  total  contents  of  the  fields 
at  70  billion  tons.  The  control  of  this  great  supply  of  coal  would 
undoubtedly  be  of  great  strategic  and  commercial  advantage  to  the 
Germans. 

It  is  not  unlikely  that  one  of  the  most  important  resources  of  the 
entire  Ukraine  from  the  German  standpoint  will  prove  to  be  her 


WAR  AS  A  BUSINESS  VENTURE  77 

deposits  of  manganese.  This  rare  metal,  which  is  a  necessity  to  any 
nation  developing  an  independent  steel  industry,  is  found  only  in  a 
few  places  scattered  over  the  world.  Germany,  as  far  as  is  known, 
has  within  her  borders  no  sources  capable  of  supplying  anything  like 
the  quantity  her  steel  foundries  require.  During  the  war  she  is 
believed  to  have  existed  largely  on  reserves  laid  up  in  time  of  peace. 
The  leaders  of  the  German  Steel  Trust  have  long  looked  forward  to 
the  day  when  an  adequate  supply  of  manganese  might  come  under 
direct  German  control.  Germany's  imports  before  the  war  were 
about  500,000  tons  annually,  in  the  shape  of  ore,  of  which  the  greater 
part  came  from  Russia.  The  largest  Russian  output  is  from  the 
Caucasus,  in  the  region  to  be  annexed  to  Turkey,  according  to  the 
peace  treaty,  but  the  second  most  important  mines  are  near  Nikopol, 
on  the  Dnieper  River,  about  60  miles  southwest  of  the  Krivoi  Rog 
iron  mines. 

II.      THE   CAUCASUS 

A  scarcely  less  valuable  region  than  the  Ukraine  from  the  stand- 
point of  the  planners  of  a  Mittel-Europa  economic  empire  is  that 
assigned  to  Turkey  as  her  share  of  the  spoils,  which  includes  a  large 
part  of  the  Caucasus  and  the  peninsula  of  the  Crimea.  The  Cau- 
casian Mountain  chain  is  rich  in  minerals  and  oil,  while  the  valleys 
of  Trans-Caucasia,  along  the  shores  of  the  Black  Sea,  have  a  climate 
mild  enough  for  certain  semitropical  agricultural  products. 

The  oil  wells  of  the  Caucasus  are  world-famous.  Oil  is  one  of 
Germany's  greatest  needs.  The  wells  in  Galicia  and  Roumania  are 
almost  the  only  large  sources  within  the  present  boundaries  of  Teutonic 
power,  as  the  native  German  production  is  small.  The  Caspian  Sea 
region,  however,  could  supply  many  times  the  amount  needed  by  the 
Central  Powers,  even  without  further  development. 

Trans-Caucasia  also  produces  very  large  quantities  of  manganese; 
in  fact,  before  the  war  it  was  one  of  the  chief  sources  of  supply  for  the 
entire  world. 

The  hills  near  the  Black  Sea  shore  southwest  of  Batum  are  known 
to  contain  copper  ore,  and  near  Batum  a  British  company  has  a 
large  mine.  The  abundant  water-power  of  the  region  is  favorable 
to  a  much  greater  growth  of  the  electrolytic  method  of  refining.  The 
production  of  copper  in  the  Caucasus  in  1913  was  9,900  tons,  and 
could  eventually  be  largely  increased,  although  the  mines  have  been 
shut  down  for  three  years.  The  need  of  Germany  for  adequate 


78  ECONOMICS  OF  WAR 

supplies  of  copper  is  well  known.  Her  imports  before  the  war  were 
in  the  vicinity  of  200,000  tons  annually. 

Zinc  and  lead  are  found  in  considerable  deposits  in  various 
parts  of  the  Caucasus  and  are  mined  near  Vladikavkaz,  on  the 
northern  side  of  the  Caucasian  Mountain  chain.  Pyrites  from 
which  sulphur  is  produced  is  mined  to  the  extent  of  5,000 
tons  a  year.  Bituminous  coal  is  also  mined  in  relatively  small 
quantities.  Other  valuable  mineral  products  are  asbestos  and 
asphalt. 

Of  the  agricultural  products  of  the  Caucasus  probably  the  one 
most  coveted  by  the  Teutons  is  cotton.  The  immense  cotton  industry 
of  the  Central  Powers  is  entirely  dependent  on  imported  cotton, 
which  came  before  the  war  from  the  United  States  and  the  British 
possessions  of  Egypt  and  India.  A  supply  of  cotton  after  the  war  is 
vitally  necessary  to  the  economic  life  of  Germany  and  Austria.  They 
could  therefore  be  expected  to  make  as  much  use  as  possible  of  the 
Russian  output,  although  as  at  present  developed  it  can  do  very  little 
toward  supplying  their  needs.  Germany  in  1912  imported  457,784 
tons  of  raw  cotton.  The  entire  production  of  all  Russia  in  1914  was 
677,299  tons,  but  this  was  wholly  used  in  native  Russian  factories. 
In  fact,  until  within  a  year  or  two  the  Russian  production  has  been 
considerably  less  than  enough  to  supply  the  domestic  demand.  The 
main  Russian  cotton-growing  section  is  in  Central  Asia,  in  the  prov- 
inces of  Ferghana,  Syr-Daria,  and  Samarkand,  far  beyond  the  present 
limits  of  penetration  by  the  German  armies.  Russian  disorganiza- 
tion, however,  might  allow  of  German  economic  penetration  even  as 
far  as  this.  The  cotton  production  of  the  Caucasus  was  increasing 
rapidly  up  to  the  time  when  military  events  checked  it,  and  in  1914 
amounted  to  133,400  tons. 

The  cotton  lands  of  the  Caucasus  stretch  across  the  isthmus 
from  Batum  to  the  Caspian,  and  southward  in  patches  as  far  as 
Mt.  Ararat,  where  the  old  frontiers  of  Turkey,  Persia,  and  Russia 
met.  Cotton  is  also  raised  in  Northern  Persia  and  in  various  parts 
of  Turkey.  The  extension  of  the  area  is  dependent  on  the  con- 
struction of  irrigation  systems  leading  from  the  rivers  in  whose  valleys 
the  best  grade  of  cotton  grows.  The  imperial  Russian  government, 
previous  to  1914,  had  been  very  active  hi  promoting  this  industry 
through  irrigation  and  colonization.  A  very  great  expansion  is 
believed  to  be  possible,  although  it  would  probably  require  several 
years  to  get  results. 


WAR  AS  A  BUSINESS  VENTURE  79 

Silk  culture  had  only  been  recently  developed  in  the  Caucasus 
when  the  war  broke  out,  but  was  proving  very  successful.  However, 
compared  to  Germany's  requirements,  the  output  is  small. 

The  Caucasus  is  also  the  only  tea-growing  region  in  Europe  or 
Western  Asia.  In  scattered  plantations  along  the  Black  Sea  coast 
are  produced  over  1,000,000  Ibs.  annually  of  a  very  good  quality  of 
tea.  The  same  district  produces  the  tobacco  from  which  most 
Russian  cigarettes  are  made.  In  addition,  many  kinds  of  semitropical 
fruits  are  grown,  such  as  oranges,  lemons,  olives,  pomegranates,  etc. 

Turkey  is  claiming  in  addition  to  the  Caucasus,  as  her  part  of 
the  spoils,  the  peninsula  of  the  Crimea.  The  Kerch  district  of  the 
Crimea  contains  iron  mines  second  only  in  importance  to  those  of 
Krivoi  Rog. 

The  economic  importance  of  these  regions  assigned  to  Turkey  by 
the  builders  of  Mittel-Europa  is  very  great.  They  fill  out  the  portion 
of  the  shores  of  the  Black  Sea  not  occupied  by  Ukraine  or  the  members 
of  the  Teutonic  alliance,  and  thus  complete  the  transformation  of  that 
body  of  water  into  a  German  lake. 

III.      POLAND  AND  NORTH   RUSSIAN   PROVINCES 

It  remains  to  speak  of  the  frontier  provinces  north  of  Ukrainia, 
which  are  apparently  in  process  of  being  either  annexed  or  absorbed 
by  the  Germans.  Directly  bordering  on  Ukrainia  to  the  north  is 
Poland,  now  theoretically  an  independent  nation  under  Teutonic 
protection.  Poland  is  an  industrial  and  manufacturing  region,  with* 
a  relatively  dense  population  and  several  large  cities.  The  Germans 
have  been  in  possession  of  Poland  since  1915,  and  so  have  been  taking 
advantage  of  its  resources  for  two  and  a  half  years.  Its  organization 
under  German  rule  was  made  easier  by  the  large  Teutonic  influence 
already  existing  there — the  factories  were  in  many  cases  owned  by 
German  capital,  the  workmen  were  in  part  Germans,  and  many  of  the 
owners  of  the  large  agricultural  estates  were  Germans. 

The  advantages  which  would  accrue  to  Germany  from  the 
possession,  actual  or  practical,  of  this  industrious  and  normally 
prosperous  region,  over  which  the  war  has  exercised  a  temporarily 
destructive  effect,  rest  perhaps  chiefly  on  the  fact  that  the  German 
industrialists  and  agriculturalists,  who  have  long  had  a  strong  hold 
on  the  country,  would  then  be  enabled  to  make  complete  their  domi- 
nation. Many  Germans  would  be  repatriated,  and  their  labors  added 
to  the  sum  total  of  the  Empire. 


80  ECONOMICS  OF  WAR 

The  remaining  region  of  Russia  in  danger  of  coming  under  German 
rule  is  that  of  the  Baltic  provinces — Lithuania,  Livonia,  Courland, 
Esthonia,  and  perhaps  Petrograd.  The  population  is  sparser  than 
in  the  regions  to  the  southward,  and  there  are  few  large  cities.  Their 
outlet  is  to  the  Baltic,  which  appears  to  be  marked  out  for  another 
German  lake  by  the  militarists.  They  are  in  the  main  agricultural 
districts,  with  industrial  growth  in  the  various  centers.  Petrograd 
is  the  business  and  commercial  center.  The  main  agricultural  product 
of  value  in  many  parts  is  flax,  a  textile  material  which  the  Germans 
may  utilize  to  some  extent  to  make  up  for  their  lack  of  cotton  and 
wool.  Russia  is  the  world's  chief  flax-producing  country,  and  the 
districts  where  it  is  raised  include  all  of  North  Central  Russia  as 
well  as  the  Baltic  provinces.  Germany's  imports  of  flax  in  1912  were 
50,539  tons  of  fibre,  almost  all  of  which  came  from  Russia.  Possession 
of  the  flax-growing  regions  would  enable  the  Germans  better  to 
organize  this  trade. 

Finland,  to  the  north  and  west  of  Petrograd,  is  also  a  region  of 
vast  water-power,  resembling  Norway  in  that  respect.  The  so-called 
Imatra  water-power  project,  in  which  German  capital  was  interested 
before  the  war,  is  believed  capable  of  producing  sufficient  power  for 
the  entire  Finnish  railway  system,  as  well  as  for  the  city  of  Petrograd 
and  near-by  cities  in  Finland.  Finland  exports  normally  some 
120,000  tons  of  paper  and  even  larger  quantities  of  cellulose.  The 
lumber  resources  are  very  large. 

IV.      ROUMANIA 

In  addition  to  Russia,  the  Mittel-Europa  scheme  appears  to  include 
more  or  less  of  German  control  over  Roumania,  the  only  one  of  the 
Balkan  States  possessing  economic  resources  of  world-importance. 
Roumania's  main  exports  are  petroleum  and  grain,  both  very  valuable 
to  Germany.  The  petroleum  production  is  about  1,800,000  tons 
a  year,  or  practically  sufficient  to  supply  the  entire  demands  of  the 
Central  Powers.  Under  the  treaty  of  peace  recently  signed  the  entire 
exploitation  of  petroleum  in  Roumania  is  to  be  under  Austro-German 
control.  Together  with  the  wells  in  Galicia,  it  would  appear  that 
with  this  supply  it  would  not  be  necessary  for  Germany  to  acquire  the 
wells  of  the  Caucasus.  The  control  of  the  latter,  however,  would 
be  a  powerful  weapon  in  the  hands  of  the  Germans  for  use  against 
other  nations  desiring  the  Russian  oil. 


WAR  AS  A  BUSINESS  VENTURE 


81 


The  cereals  produced  for  export  by  Roumania  are  wheat,  corn, 
oats,  barley,  and  rye.  The  following  table  indicates  how  far 
Roumania  alone  can  go  to  supply  the  cereal  needs  of  the  Central 
Powers. 


ROUMANIA'S 
EXPORTS  IN  1913 

NET  IMPORTS  OF  GERMANY  AND 
AUSTRIA  IN  1913 

Bushels 

Bushels 

Wheat.... 
Corn  

50,406,000 
42.72i;,OOO 

73,766,000 
61  970  ooo 

Oats  

2,000  ooo 

(Exported)       8  953  ooo 

Barley  .... 
Rye.  . 

10,928,000 

2,481,000 

140,258,000 
(Exported)     51  947  ooo 

V.      ECONOMIC   LIMITATIONS   OF    MITTEL-EUROPA 

The  main  lack  of  the  economic  empire  as  at  present  developed 
by  Germany  appears  to  be  that  it  nowhere  enters  the  tropics,  and 
that  therefore  Germany  is  entirely  cut  off  from  tropical  products. 
One  of  the  most  important  groups  of  these  products  is  that  of  the  gums 
and  resins,  including  rubber,  gutta-percha,  gutta-joolatong,  and  other 
kindred  juices.  Germany  in  1912  imported  15,632  tons  of  rubber 
alone,  and  104,860  tons  of  resins.  Synthetic  rubber  would  appear 
to  be  the  only  possible  source  of  this  commodity  within  the  German 
Empire. 

Another  great  group  of  products  not  adequately  produced  in  the 
Empire  is  that  of  oils  and  fats.  The  exhaustion  of  flocks,  due  to  their 
killing  off  for  meat,  has  reduced  the  output  of  animal  fats,  and  the 
vegetable  oils  are  derived  largely  from  tropical  products  like  copra, 
from  the  cocoanut,  and  palm  fruit.  The  imports  of  linseed  and  flax- 
seed  oil  from  Russia  help  the  situation  in  some  degree,  but  the  cutting 
off  of  the  supplies  of  cottonseed  oil  from  America  cannot  easily  be 
remedied.  The  extent  to  which  fish  oil  can  be  used  as  a  substitute  is 
problematical. 

In  the  textiles  also  Germany  is  weak.  The  Russian  and  Turkish 
cotton  fields  can  hardly  support  the  Empire  until  after  a  number  of 
years,  if  they  can  ever  do  so.  The  loss  of  the  Australian  and  Argentine 
wool  can  be  made  up  only  in  small  measure  by  the  Russian  and 
Turkish  supplies. 

As  to  silk,  Germany's  imports  in  1912  were  15,740,000  Ibs.,  while 
the  combined  production  of  Austria-Hungary,  the  Balkans,  Turkey, 


82  ECONOMICS  OF  WAR 

the  Caucasus,  and  Persia  was  only  4,802,000  Ibs.  How  much  the  lack 
of  these  materials  could  be  made  up  by  the  importation  of  flax  from 
Russia  is  also  problematical.  The  hemp  production  of  the  Ukraine, 
however,  may  go  far  toward  replacing  the  lack  of  jute. 

The  lack  of  tropical  territory,  of  course,  entails  a  loss  of  a  vast 
number  of  minor  food  products,  such  as  bananas,  coffee,  cocoa,  rice, 
spices,  etc.  On  the  other  hand,  the  main  food  elements,  including 
cereals  and  fruits,  appear  to  be  present  or  capable  of  being  developed 
in  sufficient  quantities  in  the  Empire.  In  time  the  supply  of  meat 
could,  in  all  probability,  be  made  sufficient. 

Among  the  minerals,  the  most  serious  lack  outside  of  that  of 
nitrates,  which  will  be  replaced  very  largely  by  the  artificial  nitrate 
industry  that  has  grown  up  during  the  war,  seems  to  be  of  nickel  and 
aluminum.  There  may  also  be  a  shortage  of  tungsten  for  high-speed 
steel,  as  it  is  not  known  to  what  extent  this  rare  metal  has  recently 
been  discovered  in  Germany.  The  supplies  of  aluminum  are  likewise 
uncertain,  although  in  1912  Germany  imported  16,038  tons  of  this 
metal.  It  is  to  be  noted  that  there  are  large  mines  of  aluminum  ore 
in  Switzerland.  Nickel  is  not  mined  in  European  Russia,  and  the 
German  production  falls  far  short  of  the  demand. 

It  is  thus  obvious  that  a  German  Empire  comprising  only  the 
regions  already  under  German  control  falls  short  in  several  respects 
of  being  economically  self-sufficient.  There  is  a  direction,  however, 
in  which  German  effort  already  shows  signs  of  turning,  which  might 
lead  to  a  completion  of  the  economic  structure.  This  is  the  road  to 
India,  which  leads  to  supplies  of  cotton,  wool,  vegetable  oils,  rubber, 
hides  and  skins,  and  many  other  products  now  lacking  in  the  German 
scheme. 

VII.     Human  Attitudes,  Rational  or  Otherwise 

i.    WHY  WAR  PERSISTS  DESPITE  ITS  IRRATIONAL 
CHARACTER1 

Now  to  these  outworn  notions  of  economic  nationalism  add 
another  factor — one  which  the  pro-military  critic  seems  to  imagine 
the  civilist  overlooks,  though  it  is  in  reality  the  basis  of  the  whole 
case,  the  most  important  fact  in  all  this  discussion — namely,  that  the 
element  in  man  which  makes  him  capable,  however  feebly,  of  choice 

1  By  Norman  Angell  (see  p.  9).  Adapted  from  Arms  and  Industry,  pp.  xxiii- 
xxxvii.  Published  by  G.  P.  Putnam's  Sons,  1914.  Cf.  also  "Industrial  Penetra- 
tion," p.  26,  above. 


WAR  AS  A  BUSINESS  VENTURE  83 

in  the  matter  of  conduct,  the  one  fact  distinguishing  him  from  that 
vast  multitude  of  living  things  which  act  unreflectingly,  is  something 
not  deeply  rooted,  since  it  is  the  latest  addition  of  all  to  our  nature. 
The  really  deeply  rooted  motives  of  conduct,  those  having  by  far  the 
greatest  biological  momentum,  are  naturally  the  " motives"  of  the 
plant  and  the  animal,  the  kind  that  marks  in  the  main  the  acts  of  all 
living  things  save  man,  the  unreflecting  motives,  those  containing  no 
element  of  ratiocination  and  free  volition,  that  almost  mechanical 
reaction  to  external  forces  which  draw  the  leaves  towards  the  sun  rays 
and  makes  the  tiger  tear  its  living  food  limb  from  limb. 

To  make  plain  what  that  really  means  in  human  conduct,  we  must 
recall  the  character  of  that  process  by  which  man  turns  the  forces  of 
nature  to  his  service  instead  of  allowing  them  to  overwhelm  him. 
We  saw  that  its  essence  was  a  union  of  individual  forces  against  the 
common  enemy,  the  forces  of  nature.  Where  men  in  isolated  action 
would  have  been  powerless  and  would  have  been  destroyed,  union, 
association,  co-operation,  enabled  them  to  survive.  Survival  was 
contingent  upon  the  cessation  of  struggle  between  them,  and  the 
substitution  therefor  of  common  action.  Now  the  process  both  in 
the  beginning  and  in  the  subsequent  development  of  this  device  of 
co-operation  is  important.  It  was  born  of  a  failure  of  force.  If  the 
isolated  force  had  sufficed,  the  union  of  force  would  not  have  been 
resorted  to.  But  such  union  is  not  a  mere  mechanical  multiplication 
of  blind  energies;  it  is  a  combination  involving  will,  intelligence.  If 
mere  multiplication  of  physical  energy  had  determined  the  result  of 
man's  struggles  he  would  have  been  destroyed  or  be  the  helpless  slave 
of  the  animals  of  which  he  makes  his  food.  He  has  overcome  them 
as  he  has  overcome  the  flood  and  the  storm — by  quite  another 
order  of  action.  Intelligence  only  emerges  where  physical  force  is 
ineffective. 

I  have  already  in  this  summary  touched  upon,  and  in  the  pages 
that  follow  more  fully  described,  the  almost  mechanical  process  by 
which,  as  the  complexity  of  co-operation  grows,  the  element  of 
physical  compulsion  declines  in  effectiveness  and  is  replaced  by  agree- 
ment based  on  mutual  recognition  of  advantage.  There  is  through 
every  step  of  the  development  the  same  phenomenon:  intelligence 
and  agreement  only  emerge  as  force  becomes  ineffective.  In  human 
relations  it  generally  becomes  ineffective  through  resistance.  The 
early  (and  purely  illustrative)  slave  owner,  who  spent  his  days  seeing 
that  his  slave  did  not  run  away  and  compelling  him  to  work,  realized 


84  ECONOMICS  OF  WAR 

the  economic  defect  of  the  arrangement;  most  of  the  effort,  physical 
and  intellectual,  of  the  slave  was  devoted  to  trying  to  escape;  that 
of  the  owner,  to  trying  to  prevent  him.  The  force  of  the  one,  intel- 
lectual or  physical,  cancelled  the  force  of  the  other,  and  the  energies 
of  both  were  lost  so  far  as  productive  value  was  concerned,  and  the 
needed  task,  the  building  of  the  shelter  or  the  catching  of  the  fish,  was 
not  done  or  badly  done,  and  both  went  short  as  to  food  and  shelter. 
But  from  the  moment  that  they  struck  a  bargain  as  to  the  division 
of  labour  and  of  spoils  and  adhered  to  it,  the  full  energies  of  both  were 
liberated  for  direct  production,  and  the  economic  effectiveness  of  the 
arrangement  was  not  merely  doubled,  but  probably  multiplied  many 
times.  But  this  substitution  of  free  agreement  for  coercion,  with  all 
that  it  implied  of  contract,  of  "what  is  fair,"  and  all  that  followed  of 
mutual  reliance  in  the  fulfilment  of  the  agreement,  was  based  upon 
mutual  recognition  of  advantages.  Now  that  recognition,  without 
which  the  arrangement  could  not  exist  at  all,  required  relatively  a 
considerable  mental  effort  due  in  the  first  instance  to  the  failure  of  force. 
If  the  slave  owner  had  had  more  effective  means  of  physical  coercion, 
and  had  been  able  to  subdue  his  slave,  he  would  not  have  bothered 
about  agreement,  and  this  embryo  of  human  society  and  justice  would 
not  have  been  brought  into  being.  And  in  history,  as  soon  as  one 
party  or  the  other  obtained  such  preponderance  of  strength  as  prom- 
ised to  be  effective,  he  showed  a  tendency  to  drop  free  agreement  and 
use  force;  this  of  course  immediately  provoked  the  resistance  of  the 
other,  with  a  reversion  to  the  earlier  profitless  condition. 

This  perpetual  tendency  to  abandon  the  social  arrangement  and 
resort  to  physical  coercion  is,  of  course,  easily  explainable  by  the 
biological  fact  just  touched  on.  To  realize  at  each  turn  and  per- 
mutation of  the  division  of  labour  that  the  social  arrangement  was, 
after  all,  the  best,  demanded  on  the  part  of  the  two  characters  in  our 
sketch,  not  merely  control  of  instinctive  actions,  but  a  relatively 
large  ratiocinative  effort  for  which  the  biological  history  of  early  man 
had  not  fitted  him.  The  physical  act  of  compulsion  required  only  a 
stone  axe  and  a  quickness  of  purely  physical  movement  for  which  his 
biological  history  had  afforded  infinitely  long  training.  The  more 
mentally  motived  action,  that  of  social  conduct,  demanding  reflection 
as  to  its  effect  on  others  and  the  effect  of  that  reaction  upon  our  own 
position  and  a  conscious  control  of  physical  acts,  is  of  modern  growth ; 
it  is  but  skin  deep;  its  biological  momentum  is  feeble.  Yet  on  that 
feeble  structure  has  been  built  all  civilization. 


WAR  AS  A  BUSINESS  VENTURE  85 

2.    PATRIOTISM  AND  SELFISHNESS  CANNOT  BE 
ISOLATED1 

If  you  look  at  a  human  being  as  he  lives  in  the  world,  instead  of 
treating  him  as  an  abstraction,  there  is  simply  no  way  of  isolating 
what  is  called  the  economic  from  the  patriotic  motive.  They  are  both 
aspects  of  the  business  of  life,  the  business  of  getting  on.  The  fixing 
of  frontiers  is  a  real  estate  operation.  Because  real  estate  is  involved, 
you  can  call  the  patriotism  which  surrounds  it  a  masquerade. 

But  the  truer  thing  to  say,  it  seems  to  me,  is  that  patriotism 
envelops  the  real  estate  because  the  real  estate  nourishes  the  lives 
and  careers  of  the  patriots.  And  the  local  patriots  will  fight  for  their 
real  estate,  and  some  of  them  will  die  that  others  may  keep  it.  That 
is  the  riddle  about  patriotism  in  its  relation  to  economics. 

The  riddle,  I  fancy,  may  perhaps  be  read  in  some  such  way  as  this : 
Out  of  our  childhood  rises  a  stream  of  appetite  colored  by  our  earliest 
attachments.  It  seeks  to  satisfy  itself,  to  magnify  its  importance,  to 
protect  what  statesmen  call  its  prestige  and  satirists  call  its  vanity. 
This  stream  flows  into  the  channels  of  business  opportunity.  By 
real  estate  or  selling  shoes  our  appetites  search  for  their  food.  But 
in  the  process  the  forms  of  business  are  overlaid  with  our  emotion. 
We  wrap  ourselves  around  our  money-making  and  transfigure  it. 
It  is  identified  then  with  all  that  is  most  precious.  The  export  of 
bicycles  or  steel  rails  is  no  longer  the  cold-blooded  thing  it  looks  like 
in  statistical  reports  of  commerce.  It  is  integrated  with  our  passion. 
It  is  wife  and  children  and  being  respected.  So  when  trade  is 
attacked,  we  are  attacked.  The  thing  which  was  a  means  to  an  end 
has  become  part  of  ourselves.  We  are  ready  to  fight  and  die  for  it 
because  it  taps  the  loyalties  which  are  what  we  are. 

Passion  seems  to  be  able  to  feed  upon  almost  anything  from  the 
thinnest  dreams  to  the  export  of  copper.  But  whatever  it  does  feed 
upon  is  for  the  time  being  the  passion  itself.  When  copper  exports 
are  attacked,  it  isn't  reasoned  calculation  alone  which  makes  the 
decision  for  action.  It  is  the  feeling  of  the  people  whose  passion  is 
fused  with  the  copper  trade. 

How  does  it  happen,  though,  that  the  people  not  concerned  in  a 
special  interest  are  so  ready  to  defend  it  against  the  world  ?  Plain 
men  who  have  no  financial  interest  in  copper  will  feel  aggrieved  if 

1  By  Walter  Lippmann  (see  p.  54).  Adapted  from  The  Stakes  of  Diplomacy, 
pp.  74-81.  Copyright  by  Henry  Holt  &  Co.,  1915. 


86  ECONOMICS  OF  WAR 

American  copper  interests  in  a  foreign  land  are  attacked.  The 
German  people  felt  "humiliated"  because  German  trade  was  thwarted 
in  Morocco. 

The  most  obvious  reason  for  this  is  that  the  private  citizens  are 
in  the  main  abysmally  ignorant  of  what  the  real  stakes  of  diplomacy 
are.  They  do  not  think  in  terms  of  railroad  concessions,  mines, 
banking,  and  trade.  When  they  envisage  Morocco  they  do  not  think 
of  the  Mannesmann  Brothers,  but  of  "  German  prestige  "  and  "  French 
influence."  When  the  Triple  Entente  compelled  Germany  to  recede 
in  the  Moroccan  affair  of  1911,  the  rage  of  the  German  people  was 
not  due  to  a  counting  of  their  economic  losses.  They  were  furious, 
not  that  they  had  lost  Morocco,  but  that  they  had  lost  the  dispute. 
There  is  small  doubt  that  the  masses  of  people  in  no  country  would 
risk  war  to  secure  mining  concessions  in  Africa.  But  the  choice  is 
never  presented  to  them  that  way.  Each  contest  for  economic 
privileges  appears  to  the  public  as  a  kind  of  sporting  event  with 
loaded  weapons.  The  people  wish  their  team,  that  is,  their  country, 
to  win.  Just  as  strong  men  will  weep  because  the  second  baseman 
fumbles  at  the  crucial  moment,  so  they  will  go  into  tantrums  of  rage 
because  corporations  of  their  own  nationality  are  thwarted  in  a 
commercial  ambition. 

They  may  have  nothing  tangible  to  gain  or  lose  by  the  trans- 
action; certainly  they  do  not  know  whether  they  have.  But  they 
feel  that  "our"  trade  is  their  own,  and  though  they  share  few  of  its 
profits  they  watch  its  career  with  tender  solicitude.  Above  all,  they 
feel  that  if  "our"  German  traders  are  beaten  in  Morocco,  the  whole 
value  of  being  a  German  has  been  somewhat  lessened.  Trade-marks 
like  "Made  in  Germany"  were  a  constant  humiliation  to  Englishmen, 
even  though  they  were  glad  to  buy  the  goods  because  they  were 
cheaper  and  better.  But  when  from  all  over  the  world  Englishmen 
came  home  beaten  by  a  greater  vitality  and  more  modern  organization, 
their  damaged  pocketbooks  were  only  the  smallest  part  of  their  loss. 
The  real  wound  was  the  wound  of  self-respect,  the  lurking  fear  that 
there  has  been  a  depreciation  in  Englishmen.  The  fear  is  emphasized 
by  the  public  opinion  of  the  world  which  judges  by  trade  efficiency  and 
asks  heartrending  questions  like:  Is  England  decadent?  Friendly 
critics  rub  salt  into  the  wound  by  commenting  on  the  obsolete  machin- 
ery of  British  manufacture,  the  archaic  habits  of  British  merchants. 
Is  it  any  wonder  that  what  starts  as  a  loss  of  dollars  and  cents  is  soon 
transfigured  into  a  loss  of  the  Englishman's  importance  in  the  world  ? 


WAR  AS  A  BUSINESS  VENTURE  87 

But  when  you  attack  that  you  attack  the  sources  of  his  patriotism, 
and  when  he  starts  to  reassert  his  importance,  the  proceeding  has 
ceased  to  appear  as  a  commercial  enterprise.  It  has  become  a  defense 
of  British  civilization. 

This  is  the  mood  for  a  strong  foreign  policy,  which  means  a  policy 
that  uses  political  power  to  increase  national  prestige.  The  way  to 
increase  national  prestige  is  to  win  economic  victories  by  diplomatic 
methods.  British  diplomacy  has  been  winning  them  for  fifteen  years 
— in  Egypt,  Persia,  Africa.  While  Germany  was  capturing  trade, 
Great  Britain  was  scoring  the  diplomatic  victories — the  greatest  of 
them  being  that  in  Morocco. 

The  actual  trade  of  Morocco  was  insignificant  in  the  melee. 
Morocco  became  the  bone  on  which  Germany  and  England  tested 
the  sharpness  of  their  teeth.  The  two  populations  cared  very  little 
for  any  particular  iron  mine,  but  they  cared  enormously  about  the 
standing  of  Englishmen  and  Germans  in  settling  world-problems. 
National  feeling  was  unloosened  which  overflowed  the  original  dispute. 
Morocco  meant  not  money  but  bad  will,  suspicion,  fear,  resentment. 
To  the  British  it  was  evidence  of  German  aggression;  to  the  German 
it  represented  the  tightening  of  the  iron  ring,  the  policy  of  encircle- 
ment. The  strongest  passions  of  defense  in  both  countries  were  called 
into  the  European  arena,  and  when  both  sides  claim  to  be  defensive  I 
see  no  reason  for  questioning  their  sincerity.  It  is  perfectly  possible 
for  two  nations  to  feel  attacked  at  the  same  time.  In  some  such  way 
as  this  patriotism  becomes  involved  in  business. 

3.    PLANS  OF  THE  FINANCIAL  INTERESTS1 

The  play  of  motives  in  war  makes  a  baffling  study  of  psychology. 
Nothing  seemed  clearer  when  this  war  broke  out  than  that  Germany 
invaded  Belgium  for  purely  strategic  reasons.  Her  armies  were 
turning  the  fortifications  of  the  eastern  frontiers  of  France  and  seeking 
an  easy  though  roundabout  way  to  Paris.  As  the  war  went  on  one 
began  to  doubt  this  obvious  and  relatively  charitable  explanation. 
In  the  first  place,  the  military  strategy  was  questionable.  A  strategy 
appropriate  to  Germany's  avowed  purpose  would  have  sought  a 

1  By  H.  N.  Brailsford.  Adapted  from  "The  Age  of  Iron,"  New  Republic,  V 
(November,  1915,  to  January,  1916),  164-66.  Copyright  by  the  Republic  Pub- 
lishing Co. 

ED.  NOTE. — H.  N.  Brailsford  is  one  of  the  most  brilliant  of  present-day 
English  writers  on  social  and  economic  subjects. 


88  ECONOMICS  OF  WAR 

prompt  and  crushing  military  decision  against  Russia.  France  might 
have  been  held  with  relatively  small  forces  on  the  line  of  the  Vosges, 
Belgium  need  never  have  been  invaded,  and  the  German  armies 
might  have  reached  the  Vistula  as  rapidly  as  they  reached  the  Marne. 
In  a  war  conducted  on  these  lines  Great  Britain  would  not  have 
intervened  promptly,  and  had  she  intervened  the  country  would 
have  been  as  sharply  divided  as  it  was  during  the  Boer  War,  though 
Sir  Edward  Grey,  Mr.  Lloyd  George,  and  Mr.  Churchill  would 
probably  have  succeeded  in  the  end  in  creating  a  coalition  party 
for  war. 

Why  was  this  natural  and  obvious  strategy  rejected  ?  Through 
Belgium  lay  the  natural  road  to  Calais,  and  Calais  means  the  ability 
to  operate  in  the  Atlantic  and  the  power  to  compete  with  Britain  for 
a  colonial  empire.  The  apparent  stupidity  involved  in  the  occupation 
of  Belgium  vanishes  when  one  realizes  that  the  naval-colonial  party 
was  really  acquiring  a  strategic  point  for  a  greater  world-struggle  in 
the  future.  But  there  was  another  and  even  simpler  reason  for  the 
occupation  of  Belgium,  and  this  was  not  strategical  but  economic. 
Belgium  contains  a  rich  coal  field,  and  the  north  of  France  has  not 
only  coal  fields  but  invaluable  mines  of  iron  ore.  These  mineral 
riches  are  advanced  to-day  by  German  industrialists  as  a  reason  why 
Belgium  and  the  north  of  France  must  be  permanently  annexed. 
It  is  probable  enough  that  in  the  desire  to  possess  these  great  sources 
lay  the  real  motive  for  the  march  through  Belgium.  For  years  the 
general  staff  had  prepared  its  projects  of  invasion.  When  we  ask 
why  none  of  the  middle-class  parties  in  Germany  protested  during  the 
calm  years  of  peace  against  these  plans  as  the  Socialists  did,  the  answer 
may  very  well  be  that  they  reckoned  coldly  on  something  more 
permanent  than  a  momentary  strategical  advantage. 

It  is  impossible  to  read  the  confidential  memorandum  which  six 
of  the  most  powerful  industrial  and  agrarian  leagues  addressed  to  the 
German  Chancellor  last  May  without  harboring  this  suspicion.  The 
full  text  as  it  appeared  in  L'Humanite  for  August  n,  1915,  is  a  startling 
self-revelation  of  the  predatory  mind.  These  people,  be  it  remem- 
bered, are  not  soldiers,  and  their  state  of  mind  is  not  militarism  but 
capitalism.  They  have  pondered  maturely  on  the  question,  Does 
conquest  pay?  and  they  think  they  have  found  the  answer.  Their 
program  is  the  annexation  of  all  Belgium,  the  French  departments  of 
Calais  and  the  north,  and  French  Lorraine.  But  that  is  not  all. 


WAR  AS  A  BUSINESS  VENTURE  89 

They  insist  that  all  the  great  industrial  undertakings  of  this  large 
and  populous  region  must  pass  into  the  actual  ownership  of  Germans — 
the  railways,  canals,  mines,  and  even  the  landed  estates.  They  do 
not  go  so  far  as  to  suggest  that  the  conquerors  should  expropriate  the 
present  owners  without  compensation,  but  they  have  an  ingenious 
scheme  for  shifting  the  burden  to  the  enemy's  shoulders.  The 
compensation  must  be  paid,  not  by  Germany  which  acquires  this 
territory,  but  by  France  which  loses  it. 

It  has  always  seemed  to  me  that  Mr.  Norman  Angell,  in  spite  of 
the  brilliant  illumination  which  he  has  thrown  on  the  economics  of 
war  and  peace,  ignored  the  vast  gains  which  the  propertied  classes 
draw  from  war,  imperialism,  and  the  armed  peace.  Their  investments 
in  the  tropics,  their  economic  tribute  from  India  and  Egypt,  their 
exploitation  of  concession  areas  and  spheres  of  influence,  represent 
a  direct  return  from  the  accumulation  and  use  of  naval  and  military 
power.  About  one-fourth  of  the  income  of  the  British  propertied 
class  is  derived  from  investments  overseas,  and  for  these  investments 
our  navy  is  the  indispensable  insurance.  A  little  war  which  wins 
Egypt  or  Burmah  means  direct  profit  to  the  contractors,  the  bond- 
holders, the  land  syndicates,  and  oil  trusts  which  exploit  these  regions. 
Mr.  Angell  is  profoundly  in  the  right  when  he  argues  that  such 
conquests  do  not  enrich  a  nation,  but  undoubtedly  they  may  enrich 
a  nation's  propertied  and  governing  class.  In  one  sphere,  however, 
socialistic  critics  were  not  inclined  to  dispute  Mr.  AngelFs  doctrine. 
I  myself  used  to  argue  that  his  doctrine  was  absolutely  true  in  its 
application  to  any  completely  developed  area  with  an  old  civilization. 
It  would  not  pay  to  conquer  Lancashire  or  the  Rhine  district,  because 
they  are  already  fully  capitalized.  The  conqueror  could  not  invest 
in  them  and  could  not  exploit  them.  An  imperialistic  capitalism 
turns  to  undeveloped  countries,  to  cities  without  banks  and  routes 
without  railways,  partly  because  they  are  easier  to  conquer,  but 
chiefly  because  they  can  absorb  capital.  In  the  face  of  this  German 
program  we  must  all  revise  our  theories.  If  a  conquering  Germany 
could  expropriate  the  capitalists  of  a  conquered  Belgium  and  France 
and  take  over  all  their  organized  industry  at  the  cost  of  the 
vanquished,  the  adventure  would  be  vastly  more  profitable  to  the 
German  middle  classes  than  any  conceivable  expansion  in  China, 
Africa,  or  Turkey.  The  German  masses  would  have  paid  the  price 
in  blood  and  taxation,  nor  would  they  ever  share  in  the  wage-list  of 


QO  ECONOMICS  OF  WAR 

the  stolen  mines.  But  German  capitalists  might  indeed  reckon  on 
"wealth  beyond  the  dreams  of  avarice." 

The  critical  reader  may  at  this  point  enter  certain  objections:  the 
military  power  of  Germany  is  not  equal  to  the  accomplishment  of 
such  a  program;  the  world  would  never  tolerate  such  naked  robbery; 
France,  if  she  were  utterly  crushed,  would  be  unable  to  pay  the 
indemnity;  the  cost  of  holding  down  this  country  would  more  than 
eat  up  the  profits  of  exploiting  it;  finally,  the  German  government  is 
neither  so  ruthless  nor  so  unwise  as  these  capitalist  leagues,  and  the 
Socialists  (not  to  mention  the  Delbriick-Dernburg  school)  may  be 
trusted  to  oppose  them.  All  these  objections  are  sound.  The 
program  cannot  be  realized,  and  for  my  part  I  am  sure  that  the 
German  Chancellor  never  entertained  it.  The  fact  remains  that  this 
project  did  and  does  inspire  the  dreams  of  the  German  capitalistic 
world.  This  project  and  others  like  it  have  formed  their  policy, 
shaped  their  dreams  of  world-power,  and  governed  their  unflinching 
support  of  a  policy  of  great  armaments.  For  a  year  past  the  whole 
English-speaking  world  has  been  discussing  Prussian  militarism  and 
tracing  it  to  the  professors.  Its  real  backing  came  rather  from  the 
conscious  organized  force  of  these  capitalistic  associations.  For  them 
militarism  meant  business,  and  they  are  now  demanding  the  profits 
on  their  investment.  When  Prince  Billow  challenged  the  German 
Socialists  to  the  direct  test  of  an  election  on  the  straight  issues  of 
militarism  and  imperialism,  the  funds  for  the  electoral  operations 
of  his  Liberal-Conservative  coalition  were  openly  found  by  the  big 
metallurgical  trade  organizations  (cartels).  They  assessed  their 
members  so  that  each  employer  contributed  a  mark  for  every  work- 
man he  employed.  The  workman  might  vote  for  Bebel,  but  his 
master's  shilling  balanced  his  vote. 

In  all  this  capitalistic  organization  of  German  militarism  and 
imperialism  it  was  the  industrialists  of  the  metal  trades  that  led. 
They  form  the  backbone  of  the  National  Liberal  party,  which  from 
the  black  country  of  the  lower  Rhine  has  dominated  German  foreign 
policy  from  the  days  of  Bismarck  downwards.  One  reason  was  that 
their  industry  made  a  great  profit  from  armaments,  but  that  was  not 
the  only  reason.  Once  before  the  German  iron  industry  all  but 
involved  Europe  in  war.  It  wanted  Morocco,  because  Morocco 
contains  a  great  store  of  admirable  iron  ore;  and  here  of  course  the 
motives  of  the  French  colonial  party  were  the  same  and  their  morals 


WAR  AS  A  BUSINESS  VENTURE  91 

no  better.  To-day  it  demands  Belgium  as  yesterday  it  demanded 
Morocco.  I  do  not  want  to  exaggerate.  It  would  be  absurd  to  say 
that  the  Kaiser  made  his  declaration  of  war  because  the  Rhine  trusts 
want  French  and  Belgian  coal  and  iron.  But  it  is  the  sober  truth 
that  on  the  German  side  the  whole  policy  which  set  Europe  in  two 
armed  camps  and  so  exasperated  the  struggle  for  a  balance  of  power 
that  it  flamed  into  war  was  motived  by  the  expectation  of  German 
capitalists  that  war  would  bring  them  concrete  gains.  Without  the 
support  of  these  National  Liberal  capitalists  von  Tirpitz  could  not 
have  made  his  navy,  and  it  was  only  the  concessions  of  the  Mannes- 
mann  Brothers  which  kept  alive  the  German  interest  in  Morocco. 
The  driving  motive  of  modern  militarism  is  economic.  Ours  is  the 
age  of  iron. 

Lest  it  should  seem  that  this  article  points  a  one-sided  moral,  it  is 
necessary  to  indicate  that  the  capitalistic  strategy  of  the  Allied 
countries  is  also  busy  with  the  problem,  How  can  victory  be  made  to 
pay?  The  wilder  extremists  in  France  have  talked  of  conquering 
the  German  Rhine  country.  Our  own  imperialists  reckon  on  retain- 
ing the  German  colonies  and  on  acquiring  Mesopotamia.  But  these 
are  small  gains.  The  real  answer  is  to  be  sought  in  the  various  pro- 
jects for  destroying  or  laming  the  competition  of  German  industry  in 
the  world's  markets.  Comprehensive  schemes  have  been  published 
by  the  Italian  review,  Nuova  Antologia;  Dr.  Dillon  and  even  Mr.  Wells 
have  made  suggestions.  If  an  ambition  to  secure  coal  and  iron  fields 
lay  beneath  German  chauvinism  and  subconsciously  prepared  the 
middle  classes  for  war,  the  parallel  motive  in  this  country  and  in 
Russia  was  trade  jealousy.  The  anti-German  feeling  in  England 
was  in  its  origins  little  more  than  a  phase  of  our  protectionist  move- 
ment. Even  in  Russia  the  simple  old-world  Pan-Slavist  motive, 
which  aspires  to  the  domination  of  the  Balkans  and  the  conquest  of 
Constantinople,  and  the  allied  Slavophil  motive,  which  sees  in 
Germany  the  home  of  Western  progress  and  free  thought,  were 
reinforced  by  an  economic  motive.  Apart  altogether  from  the 
Balkan  tangle,  Russo-German  relations  were  overshadowed  last  year 
by  the  imminence  of  a  great  tariff  dispute.  The  commercial  treaties 
fell  to  be  renewed  before  1916,  and  the  small  but  influential  world  of 
Russian  industrialism  was  already  agitating  for  "liberation"  from 
German  domination,  by  which  it  meant  the  closing  of  the  frontier  to 
German  goods,  with  which  the  artificial,  immature  industry  of  Russia 


92  ECONOMICS  OF  WAR 

could  not  compete.  The  struggle  had  lasted  only  a  few  weeks  when 
M.  Bark,  the  Russian  Minister  of  Finance,  proposed  in  an  interview 
in  the  Paris  Matin  that  after  the  peace  all  the  Allied  nations  should 
continue  the  war  against  Germany  on  the  economic  plane  by  penal 
tariffs  and  international  boycotts.  The  predatory  ambitions  and 
commercial  jealousies  which  cloak  themselves  during  peace  find  in  war 
their  unashamed  expression.  War  brings  us  our  chance  to  see  in  its 
nakedness  the  world  in  which  we  live.  European  militarism  is  a 
savage  survival  which  modern  capitalism  has  adapted  to  its  own 
purpose. 


Ill 

THE  NATURE  OF  MODERN  WAR 

Introduction 

The  art  of  war  has  its  basis  in  the  industrial  system,  the  social 
organization,  and  the  conventions  and  traditions  of  a  people.  The 
military  organization  which  is  evident  is  the  visible  part  of  a  complex 
organization  of  materials,  men,  and  ideas  which  comprehends  the 
social  order.  The  army  which  engages  the  enemy  three  thousand 
miles  from  home  is  the  cutting  edge  of  a  great  and  complex  machine 
which  ramifies  into  the  utmost  confines  of  the  land,  includes  the 
activities  of  all  sorts  and  conditions  of  men,  and  depends  for  its  speed 
and  efficiency  upon  the  every-day  habits  and  activities  of  ordinary 
people.  All  the  aspects  of  the  economic  order,  the  medley  of  arrange- 
ments and  relations  which  make  it  up,  and  the  scheme  of  motives, 
ideals,  and  ends  which  give  life  to  it  can  be  assessed  in. terms  of 
advancing  or  impairing  military  efficiency.  It  is  the  object  of  this 
section  to  show  as  definitely  and  concretely  as  possible  the  complex  of 
economic  forces  which  lies  at  the  basis  of  military  practice.  To  that 
end  it  is  resolved  into  three  parts. 

The  first  of  these  divisions  is  concerned  with  the  dependence  of 
warfare  upon  the  state  of  the  industrial  arts.  Our  notions  about 
warfare  and  the  values  which  we  set  upon  it  are  largely  fixed  in  our 
thought,  being  inheritances  from  feudal  times,  when  it  was  largely  a 
sporting  event  and  battles  resolved  themselves  into  a  series  of  single 
combats  wherein  personal  alertness,  strength,  and  valor  counted  for 
everything.  Yet  since  that  time  warfare  itself  has  changed  radically. 
In  fact,  as  Adam  Smith  shows  (selection  VIII,  I),  the  length  of  the 
struggle,  the  character  of  the  combat,  the  plan  of  organization,  the 
larger  strategy,  are  all  dependent  upon  the  nature  of  the  industrial 
system  and  vary  as  that  system  varies.  Adam  Smith  wrote  too  early 
to  see  the  dependence  of  modern  warfare  upon  the  machine  technique 
and  the  close  interdependence  of  modern  industries.  But  the  other 
readings  in  this  section  indicate  how  profoundly  warfare  has  been 
modified  by  the  changes  which  have  transformed  a  simple  craft 
society  into  the  industrial,  pecuniary,  and  urban  one  which  we  know. 

93 


94  ECONOMICS  OF  WAR 

The  second  of  these  divisions  is  concerned  with  the  utilization  in 
war  of  industries,  activities,  and  institutions  which  make  up  our 
industrial  organization.  How  the  whole  range  of  science  is  made 
subservient  to  the  exigencies  of  warfare,  how  railroad  systems  have 
military  necessity  written  into  their  networks,  and  how  "industrial 
energy"  is  appropriated  and  hurled  upon  an  enemy  are  typical 
instances  of  the  dependence  of  warfare  upon  the  whole  matrix  of 
industrial  life.  These  are  but  a  few  typical  instances  serving  to  give 
current  reality  and  definiteness  to  the  general  principles  of  the 
preceding  division. 

The  third  of  the  divisions  raises  what  may  be  called  the  problem 
of  the  larger  economic  strategy  of  war.  It  concerns  the  agencies, 
materials,  and  institutions  mentioned  above  in  their  relation  to  each 
other  and  to  military  efficiency.  In  its  simplest  terms  it  raises  two 
important  questions.  The  first  is,  How  can  the  largest  surplus  of  our 
limited  productive  energy  be  taken  away  from  the  production  of 
goods  which  satisfy  civilian  uses  and  be  devoted  to  the  production 
of  the  materials  of  war  ?  The  second  is  how  to  secure  the  greatest 
military  effect;  that  is,  how  to  apportion  productive  powers  between 
the  military  organization  and  the  production  of  the  complementary 
goods  required  by  the  military  program.  These  questions  of  economic 
strategy,  which  set  the  limits  of  military  strategy,  can  be  stated  simply. 
But  since  their  proper  answer  involves  an  adjustment  of  each  indus- 
trial resource  to  every  other  industrial  resource  under  a  complex 
scheme  of  control  and  is  contingent  upon  national  tradition  and 
personal  habit,  it  is  not  easily  forthcoming.  Most  of  the  work  at 
Washington  since  the  beginning  of  the  war  has  aimed  at  finding  an 
answer  to  these  problems.  A  perspective  of  this  problem  and  some 
of  the  larger  problems  involved  in  it  are  the  subjects  of  discussion  in 
the  twelve  chapters  which  follow. 

VIII.    War  under  Modern  Industrial  Conditions 
i.    WAR  AND  THE  STATE  OF  THE  INDUSTRIAL  ARTS1 

Among  nations  of  hunters,  the  lowest  and  rudest  state  of  society, 
such  as  we  find  among  the  native  tribes  of  North  America,  every  man 
is  a  warrior  as  well  as  a  hunter.  When  he  goes  to  war,  either  to  defend 

1  By  Adam  Smith.  Adapted  from  An  Inquiry  into  the  Nature  and  Causes  of  the 
Wealth  of  Nations  (Wakefield  edition),  Book  V,  chap,  i,  pp.  1-12. 


NATURE  OF  MODERN  WAR  95 

his  society  or  to  revenge  the  injuries  which  have  been  done  to  it  by 
other  societies,  he  maintains  himself  by  his  own  labour  in  the  same 
manner  as  when  he  lives  at  home.  His  society  is  at  no  sort  of  expense 
either  to  prepare  him  for  the  field  or  to  maintain  him  while  he  is  in  it. 

Among  nations  of  shepherds,  a  more  advanced  state  of  society, 
such  as  we  find  among  the  Tartars  and  Arabs,  every  man  is,  in  the 
same  manner,  a  warrior.  When  a  nomadic  nation  goes  to  war,  the 
warriors  will  not  trust  their  herds  and  flocks  to  the  feeble  defence  of 
their  old  men,  their  women  and  children;  and  their  old  men,  their 
women  and  children  will  not  be  left  behind  without  defence  and 
without  subsistence.  The  whole  nation  takes  the  field  in  time  of  war. 
Whether  it  marches  as  an  army  or  moves  about  as  a  company  of 
herdsmen,  the  way  of  life  is  nearly  the  same,  though  the  object 
proposed  by  it  be  very  different. 

The  ordinary  life,  the  ordinary  exercises,  of  a  Tartar  or  Arab, 
prepare  him  sufficiently  for  war.  Running,  wrestling,  cudgel-playing, 
throwing  the  javelin,  drawing  the  bow,  etc.,  are  the  common  pastimes 
of  those  who  live  in  the  open  air,  and  are  all  of  them  the  images  of  war. 
When  a  Tartar  or  Arab  actually  goes  to  war  he  is  maintained  by  his 
own  herds  and  flocks  which  he  carries  with  him,  in  the  same  manner 
as  in  peace.  Hence  his  chief  or  sovereign  is  at  no  sort  of  expense  in 
preparing  him  for  the  field;  and  when  he  is  in  it  the  chance  of  plunder 
is  the  only  pay  which  he  either  expects  or  requires. 

In  a  yet  more  advanced  state  of  society,  among  those  nations  of 
husbandmen  who  have  little  foreign  commerce  and  no  other  manu- 
factures but  those  coarse  and  household  ones  which  almost  every 
private  family  prepares  for  its  own  use,  every  man,  in  the  same 
manner,  either  is  a  warrior  or  easily  becomes  such.  They  who  live 
by  agriculture  generally  pass  the  whole  day  in  the  open  air,  exposed 
to  all  the  inclemencies  of  the  seasons.  The  hardiness  of  their  ordinary 
life  prepares  them  for  the  fatigues  of  war,  to  some  of  which  their 
necessary  occupations  bear  a  great  analogy.  The  necessary  occupa- 
tion of  a  ditcher  prepares  him  to  work  in  the  trenches  and  to  fortify 
a  camp  as  well  as  to  enclose  a  field.  The  ordinary  pastimes  of  such 
husbandmen  are  the  same  as  those  of  shepherds,  and  are  in  the  same 
manner  the  images  of  war.  But  as  husbandmen  have  less  leisure 
than  shepherds  they  are  not  so  frequently  employed  in  those  pastimes. 
They  are  soldiers,  but  soldiers  not  quite  so  much  masters  of  their 
exercise.  Such  as  they  are,  however,  it  seldoms  costs  the  sovereign 
or  commonwealth  any  expense  to  prepare  them  for  the  field. 


Q6  ECONOMICS  OF  WAR 

Agriculture,  even  in  its  rudest  and  lowest  state,  supposes  a  settle- 
ment; some  sort  of  fixed  habitation  which  cannot  be  abandoned 
without  great  loss.  When  a  nation  of  mere  husbandmen,  therefore, 
goes  to  war,  the  whole  people  cannot  take  the  field  together.  The 
old  men,  the  women  and  children,  at  least,  must  remain  at  home  to 
take  care  of  the  habitation.  All  the  men  of  military  age,  however, 
may  take  the  field  and,  in  small  nations  of  this  kind,  have  frequently 
done  so.  In  every  nation  the  men  of  military  age  are  supposed  to- 
amount  to  about  a  fourth  or  a  fifth  of  the  whole  body  of  the  people. 
If  the  campaign  too  should  begin  after  seedtime  and  end  before 
harvest,  both  the  husbandman  and  his  principal  labourers  can  be 
spared  from  the  farm  without  much  loss.  He  trusts  that  the  work 
which  must  be  done  in  the  meantime  can  be  well  enough  executed  by 
the  old  men,  the  women,  and  the  children.  He  is  not  unwilling, 
therefore,  to  serve  without  pay  during  a  short  campaign,  and  it 
frequently  costs  the  sovereign  or  commonwealth  as  little  to  maintain 
him  in  the  field  as  to  prepare  him  for  it.  In  the  European  monarchies, 
which  were  founded  upon  the  ruins  of  the  Roman  Empire,  both  before 
and  for  some  time  after  the  establishment  of  what  is  properly  called 
the  feudal  law,  the  great  lords,  with  all  their  immediate  dependents, 
used  to  serve  the  crown  at  their  own  expense.  In  the  field,  in  the 
same  manner  as  at  home,  they  maintained  themselves  by  their  own 
revenue,  and  not  by  any  stipend  or  pay  which  they  received  from  the 
king  upon  that  particular  occasion. 

In  a  more  advanced  state  of  society  two  different  causes  contribute 
to  render  it  altogether  impossible  that  they  who  take  the  field  should 
maintain  themselves  at  their  own  expense.  Those  two  causes  are 
the  progress  of  manufacturers  and  the  improvement  in  the  art 
of  war. 

Though  a  husbandman  should  be  employed  in  an  expedition, 
provided  it  begins  after  seedtime  and  ends  before  harvest,  the  inter- 
ruption of  his  business  will  not  always  occasion  any  considerable 
diminution  of  his  revenue.  Without  the  intervention  of  his  labour, 
nature  herself  does  the  greater  part  of  the  work  which  remains  to  be 
done.  But  the  moment  that  an  artificer,  a  smith,  a  carpenter,  or  a 
weaver,  for  example,  quits  his  workhouse,  the  sole  source  of  his 
revenue  is  completely  dried  up.  Nature  does  nothing  for  him,  he  does 
all  for  himself.  When  he  takes  the  field,  therefore,  in  defence  of  the 
public,  as  he  has  no  revenue  to  maintain  himself  he  must  necessarily 
be  maintained  by  the  public.  But  in  a  country  of  which  a  great  part 


NATURE  OF  MODERN  WAR  97 

of  the  inhabitants  are  artificers  and  manufacturers,  a  great  part  of 
the  people  who  go  to  war  must  be 'drawn  from  those  classes,  and  must 
therefore  be  maintained  by  the  public  as  long  as  they  are  employed 
in  its  service. 

When  the  art  of  war  too  has  gradually  grown  up  to  be  a  very 
intricate  and  complicated  science,  when  the  event  of  war  ceases  to  be 
determined,  as  in  the  first  ages  of  society,  by  a  single  irregular  skirmish 
or  battle,  but  when  the  contest  is  generally  spun  out  through  several 
different  campaigns,  each  of  which  lasts  during  the  greater  part  of  the 
year,  it  becomes  universally  necessary  that  the  public  should  main- 
tain those  who  serve  the  public  in  war,  at  least  while  they  are 
employed  in  that  service.  Whatever  in  time  of  peace  might  be 
the  ordinary  occupation  of  those  who  go  to  war,  so  very  tedious 
and  expensive  a  service  would  otherwise  be  by  far  too  heavy  a 
burden  upon  them.  Under  the  feudal  governments  the  military 
service  both  of  the  great  lords  and  of  their  immediate  dependents 
was,  after  a  certain  period,  universally  exchanged  for  a  payment  in 
money,  which  was  employed  to  maintain  those  who  served  in  their 
stead. 

The  expense  of  preparing  the  army  for  the  field  seems  not  to  have 
become  considerable  in  any  nation  till  long  after  that  of  maintaining 
it  in  the  field  had  devolved  entirely  upon  the  sovereign  or  common- 
wealth. Under  the  feudal  governments  the  many  public  ordinances 
that  the  citizens  of  every  district  should  practice  archery,  as  well  as 
several  other  military  exercises,  were  intended  for  promoting  the  same 
purpose,  but  do  not  seem  to  have  promoted  it  so  well.  Either  from 
want  of  interest  in  the  officers  entrusted  with  the  execution  of  those 
ordinances,  or  from  some  other  cause,  they  appear  to  have  been 
universally  neglected;  and  in  the  progress  of  all  those  governments 
military  exercises  seem  to  have  gone  gradually  into  disuse  among  the 
great  body  of  the  people. 

The  art  of  war,  however,  as  it  is  certainly  the  noblest  of  all  arts, 
so  in  the  progress  of  improvement  it  necessarily  becomes  one  of  the 
most  complicated  among  them.  The  state  of  the  mechanical,  as 
well  as  of  some  other  arts,  with  which  it  is  necessarily  connected, 
determines  the  degree  of  perfection  to  which  it  is  capable  of  being 
carried  at  any  particular  time.  But  hi  order  to  carry  it  to  this  degree 
of  perfection  it  is  necessary  that  it  should  become  the  sole  or  principal 
occupation  of  a  particular  class  of  citizens,  and  the  division  of  labour 
(employments)  is  as  necessary  for  the  improvement  of  this  as  of  every 


98  ECONOMICS  OF  WAR 

other  art.  It  is  the  wisdom  of  the  state  only  which  can  render  the 
trade  of  a  soldier  a  particular  trade  separate  and  distinct  from  all 
others.  A  private  citizen  who  in  time  of  profound  peace  and  without 
any  particular  encouragement  from  the  public  should  spend  the 
greater  part  of  his  time  in  military  exercises  might,  no  doubt,  both 
improve  himself  very  much  in  them  and  amuse  himself  very  well; 
but  he  certainly  would  not  promote  his  own  interest.  It  is  the  wisdom 
of  the  state  only  which  can  render  it  for  his  interest  to  give  up  the 
greater  part  of  his  time  to  this  peculiar  occupation. 

A  shepherd  has  a  great  deal  of  leisure;  a  husbandman,  in  the  rude 
state  of  husbandry,  has  some;  an  artificer  or  manufacturer  has  none 
at  all.  The  first  may,  without  any  loss,  employ  a  great  deal  of  his 
time  in  martial  exercises;  the  second  may  employ  some  part  of  it; 
but  the  last  cannot  employ  a  single  hour  in  them  without  some  loss, 
and  his  attention  to  his  own  interest  naturally  leads  him  to  neglect 
them  altogether.  Those  improvements  in  husbandry,  too,  which 
the  progress  of  arts  and  manufactures  necessarily  introduces,  leave 
the  husbandman  as  little  leisure  as  the  artificer.  Military  exercises 
come  to  be  as  much  neglected  by  the  inhabitants  of  the  country  as  by 
those  of  the  town,  and  the  great  body  of  the  people  becomes  altogether 
unwarlike.  That  wealth,  at  the  same  time,  which  always  follows  the 
improvements  of  agriculture  and  manufactures,  and  which  in  reality 
is  no  more  than  the  accumulated  produce  of  those  improvements, 
provokes  the  invasion  of  all  their  neighbors.  An  industrious  and 
upon  that  account  a  wealthy  nation  is  of  all  nations  the  most  likely 
to  be  attacked;  and  unless  the  state  takes  some  new  measures  for 
the  public  defence  the  natural  habits  of  the  people  render  them  alto- 
gether incapable  of  defending  themselves. 

In  these  circumstances  there  seem  to  be  but  two  methods  by  which 
the  state  can  make  any  tolerable  provision  for  the  public  defence. 

It  may  either,  first,  by  means  of  a  very  rigorous  police,  and  in  spite 
of  the  whole  bent  of  the  interest,  genius,  and  inclinations  of  the  people, 
enforce  the  practice  of  military  exercises  and  oblige  either  all  the 
citizens  of  the  military  age,  or  a  certain  number  of  them,  to  join  in 
some  measure  the  trade  of  a  soldier  to  whatever  other  trade  or  pro- 
fession they  may  happen  to  carry  on. 

Or,  secondly,  by  maintaining  and  employing  a  certain  number  of 
citizens  in  the  constant  practice  of  military  exercises  it  may  render  the 
trade  of  a  soldier  a  particular  trade,  separate  and  distinct  from  all 
others. 


NATURE  OF  MODERN  WAR  99 

2.    THE  DEPENDENCE  OF  WAR  UPON  ECONOMIC 
ORGANIZATION1 

Before  one  can  form  an  adequate  conception  of  modern  warfare 
one  must  get  rid  of  two  misconceptions  which  have  been  very  prevalent 
in  America.  The  first  of  these  is  the  natural  result  of  the  habit  of 
thinking  of  war  only  as  a  series  of  physical  combats  between  the 
armed  forces  of  opposing  nations.  Our  predilection  to  this  obviously 
fragmentary  notion  is  due  in  part  to  the  influence  of  the  military  men 
who,  true  to  their  training,  describe  war  as  the  manipulation  of  armies 
in  the  field,  as  a  matter  of  strategy  and  tactics.  It  is  also  due  in  part 
to  man's  innate  propensity  to  look  for  the  picturesque,  rather  than 
for  the  humdrum,  workaday  machinery  behind  the  panoply  of  war. 
The  second  misconception  from  which  it  is  necessary  to  free  one's  self 
is  the  illusion  of  dollars  and  cents.  We  are  an  excessively  business- 
like people;  that  is,  we  are  very  prone  to  calculate  everything  in 
pecuniary  terms.  We  take  to  the  intricacies  of  war  finance  with 
relish,  and  the  men  whose  opinions  on  the  war  we  value  highest  are 
bankers  and  brokers  and  big-business  men  in  general.  Consequently 
we  reckon  victories  by  the  flotation  of  war  loans  and  defeats  in  the 
language  of  inflation. 

A  year's  disillusioning  experience  in  the  work  of  war,  however,  has 
served  to  teach  us  that  war  is  neither  wholly  nor  even  largely  a  matter 
of  valor  in  the  field  and  sound  financial  tone  at  home.  Modern  war 
is  almost  wholly  a  matter  of  industrial  technique.  It  is  an  affair  of 
office  and  factory. 

Under  modern  conditions  of  transportation  and  large-scale 
machine  production  it  is  possible  for  a  nation  to  throw  its  entire 
productive  energy  into  the  fight.  The  victory  depends  not  only  upon 
placing  in  the  field  soldiers  who  are  most  valorous,  but  also  upon 
turning  out  the  most  destructive  shells  in  quantities  sufficient  to 
deluge  any  or  all  parts  of  the  enemy's  line  at  will,  the  largest  quantity 
of  railroad  equipment  and  auto  trucks  with  which  to  make  its  artil- 
lery and  infantry  more  mobile  than  those  of  the  enemy,  the  largest 
quantity  of  airplanes  with  which  to  observe  the  enemy's  movements, 
to  bomb  him  behind  his  lines,,  and  to  bring  down  the  planes  which 
serve  him  for  similar  purposes.  The  world-supply  of  coal  and  metals 
is  concentrated  upon  these  tasks;  therefore  one  must  add  the  building 

1  By  C.  E.  Ayres.     From  an  unpublished  essay. 

ED.  NOTE. — Mr.  Ayres  is  an  instructor  in  philosophy  in  the  University  of 
Chicago  and  a  frequent  writer  on  economic  as  well  as  philosophical  questions. 


ioo  ECONOMICS  OF  WAR 

of  merchant  ships,  transports,  and  a  navy  as  instruments  required  for 
the  transportation  of  raw  materials  and  the  finished  products  of 
munitions  industries  as  well  as  men  from  all  parts  of  the  world.  The 
successful  accomplishment  of  this  portion  of  the  military  program 
demands  the  diversion  to  munitions  industries,  including  shipping,  of 
millions  of  workers  and  of  great  quantities  of  all  sorts  of  raw  materials 
and  products  in  the  early  stages  of  manufacture  which  would  other- 
wise have  been  consumed  in  various  ways  by  the  civilian  population. 
At  the  same  time  the  transfer  of  men  to  the  army  and  to  munitions 
industries,  the  diversion  of  materials  from  the  manufacture  of  farming 
implements  to  munitions,  the  devastation  of  fertile  lands  by  the 
armies,  and  the  exigencies  of  the  shipping  situation  all  serve  to  make 
the  problems  of  feeding  and  clothing  the  civilian  population — which 
is  manning  the  munitions  industries — of  paramount  importance. 

Under  modern  conditions,  therefore,  war  becomes  a  problem  in 
the  organization  of  a  nation,  so  that  the  proportion  of  men  engaged  in 
holding  the  lines  compared  with  the  proportion  of  men  assigned  to 
making  guns  and  shells,  airplanes,  transportation  equipment,  mer- 
chant and  battle  ships,  and  all  other  strictly  military  supplies,  com- 
pared with  the  proportion  of  men  who  are  engaged  in  raising  and 
manufacturing  just  the  amount  of  food  and  other  necessities  that  is 
required  to  maintain  the  civilian  population  as  well  as  the  armies  at 
maximum  efficiency,  shall  be  calculated  to  bring  to  realization  the 
full  strength  of  the  nation. 

Among  the  infinite  variety  of  difficulties  which  this  problem  of 
organization  presents  three  main  types  can  be  clearly  discerned.  An 
enumeration  of  them  will  serve  to  illustrate  further  the  nature  of 
modern  war.  First  there  is  the  difficulty  of  bringing  the  whole 
population  into  line  with  the  requirements  of  the  military  situation — 
the  difficulty  of  inducing  men  not  only  to  allow  themselves  to  be 
enlisted  freely  into  the  army  and  into  military  industries  but,  a  rather 
more  delicate  thing,  to  permit  their  property  to  be  used,  and  used  up,  if 
necessary,  by  the  government.  This  is  not  a  mere  matter  of  investiga- 
tion and  decision.  The  human  animal  is  very  unplastic  material — 
particularly  where  he  has  been  habituated  to  the  exercise  of  the 
prerogative  of  self-direction — that  is,  in  so  far  as  he  has  lived  under 
democratic  institutions.  The  remark  has  frequently  been  made  by 
farsighted  persons  in  this  country  as  well  as  in  Germany  that  the 
American  scheme  of  training  men  to  military  service  in  one  summer 
vacation  at  Plattsburg  overlooks  the  fact  that  no  soldier  is  truly 


NATURE  OF  MODERN  WAR  IOI 

effective  who  has  not  been  habituated  to  soldierly  ways  of  thinking 
from  childhood  up.  The  same  thing  is  true  of  the  civilian  population. 
No  people  is  sufficiently  plastic  in  the  hands  of  its  military  organizers 
which  has  not  been  trained  for  more  than  a  generation  to  submit 
readily  to  an  indefinite  number  of  things  verboten  and  to  look  to 
superior  authority  for  the  properly  authenticated  version  of  every 
man's  duty.1  If  a  nation  is  to  be  successful  in  war  it  must  look  well 
to  the  scheme  of  highly  centralized  paternalism  and  feudal  subservi- 
ence to  authority.  Lacking  a  people  trained  to  such  a  fine  temper  of 
obedience  it  must  devise  some  means  to  induce  its  people  to  give  over 
for  the  time  being  at  least  their  supposed  rights  of  self-direction  and 
fit  themselves  as  well  as  may  be  into  that  scheme  of  industrial  organi- 
zation which  is  the  first  prerequisite  to  victory. 

Yet  the  temper  of  the  people  and  the  degree  of  their  susceptibility 
to  the  appeal  of  the  war  lords  is  only  one  of  the  problems  of  the 
military  organizer  of  a  nation.  A  second  resides  in  the  fact  that  an 
organization  itself  cannot  be  brought  into  existence  overnight.  The 
industrial  order  is  so  complex  that  no  one  knows  exactly  how  complex 
it  is.  It  is  so  delicate  that  it  cannot  be  completely  reconstructed  on 
the  basis  of  any  a  priori  plan  no  matter  how  skilfully  that  plan  may 
have  been  constructed.  If  it  is  to  be  adapted  to  war,  that  adaptation 
must  inevitably  occupy  a  considerable  time  even  under  conditions  of 
perfect  wisdom  on  the  part  of  the  military  organizers.  Obviously  it 
makes  all  the  difference  in  the  world  what  the  industrial  situation 
is  to  begin  with.  If  there  is  no  labor  organization  which  commands 
the  loyalty  of  all  the  laborers  in  a  certain  trade  or  industry,  or  if  there 
is  no  central  national  labor  exchange  through  which  the  demands  for 
laborers  in  all  parts  of  the  nation  take  effect,  if  all  the  important  war 
industries  are  broken  up  into  a  large  number  of  small  competing 
concerns  which  are  bound  together  by  no  stronger  tie  than  voluntary 
membership  in  trade  associations,  then  the  nature  of  the  military 
situation  clearly  demands  the  institution  of  more  highly  centralized 
types  of  organization,  such  as  will  fall  in  more  readily  with  the  war- 
time policy  of  commanding  whole  trades.  In  distinguishing  between 
reasonable  and  unreasonable  restraint  of  trade  a  military  government 
must  bear  in  mind  the  services  to  be  rendered  by  the  combination  in 
time  of  war;  it  must  weigh  the  military  need  for  a  close-knit,  central- 
ized organization  of  each  industry,  readily  convertible  to  war  uses, 
against  considerations  of  equity  and  justice  to  the  consumer.  If  the 

1  ED.  NOTE.— Section  XIX. 


102  ECONOMICS  OF  WAR 

nation  depends  upon  imports  for  important  military  supplies  it  must 
encourage  the  production  of  such  military  necessities  at  home  by  the 
offer  of  bounties  and  the  levy  of  protective  tariffs,  thus  holding  out 
substantial  pecuniary  rewards  to  those  business  men  who  assist  it 
in  this  task  of  perfecting  the  organization  of  the  industrial  structure 
for  war. 

One  thing,  however,  industrial  organization  itself  will  not  provide. 
Technical  genius  comes  from  other  sources — this  third  difficulty  must 
be  met  in  other  ways.  Modern  war  is  peculiarly  a  war  of  weapons; 
that  is  to  say,  the  technique  of  fighting  changes  so  rapidly  under 
modern  conditions  that  it  is  not  sufficient  to  be  able  to  produce  and 
wield  a  given  set  of  military  paraphernalia.  The  successful  nation  is 
the  one  which  can  invent  new  weapons  of  offense  faster  than  the 
enemy  can  devise  means  of  defense  and  at  the  same  time  protect  itself 
not  too  tardily  from  the  new  offensive  weapons  of  the  enemy.  But 
this  technical  capacity  is  not  a  matter  of  sheer  inventive  genius; 
it  depends  upon  the  amount  of  technical  knowledge  which  the  nation 
can  command  in  its  scientific  men  and  upon  the  readiness  with  which 
that  knowledge  can  be  turned  to  account.  The  military  organizer  is 
presented  with  the  problem  of  seizing  upon  the  whole  available  stock 
of  scientific  knowledge,  of  increasing  it  if  there  be  time,  and  of  divert- 
ing it  from  its  function  as  an  instrument  for  the  discovery  of  further 
truth  to  those  industrial  channels  in  which  it  will  best  serve  the  mili- 
tary purpose.  So  far  as  the  needs  of  modern  war  are  concerned 
chemistry  is  the  mine  from  which  gas  bombs  and  synthetic  nitrates 
are  extracted;  history  is  the  raw  material  out  of  which  national  prop- 
aganda may  be  manufactured.  Victory  casts  her  laurels  upon  the 
nation  whose  scientific  genius  invents  the  most  atrocious  weapons  and 
the  most  convincing  propaganda. 

It  must  be  clear  from  all  this  that  modern  war  is  no  longer  exclu- 
sively heroic.  It  is  no  longer  decided  entirely,  or  perhaps  even 
primarily,  by  individual  valor  in  the  clash  of  arms.  It  has  become  a 
sordid  affair  of  the  machine  process  in  which  the  real  hero  is  as  likely 
to  be  an  engineer  or  a  physicist  as  a  dashing  general.  Its  problems 
are  the  problems  of  the  adaptability  of  the  whole  people  to  the 
discipline  of  war,  of  the  organization  of  industrial  monopolies  and 
the  creation  of  non-indigenous  industries,  of  the  utilization  to  the 
fullest  extent  of  the  scientific  genius  of  a  people.  The  game  is 
played  on  the  farm  and  in  the  factory;  the  armies  merely  tally  up 
the  score. 


NATURE  OF  MODERN  WAR  103 

3.     IT  TAKES  TIME  TO  DEVELOP  SPECIALIZED 
MACHINERY' 

It  was  on  or  about  May  25  [1917]  that  the  idea  of  an  American 
motor  was  born.  On  the  28th  Messrs.  Hall  and  Vincent  began  their 
historic  session.  On  June  4  the  draft  of  the  general  design  was 
complete  and  was  submitted  to  a  joint  meeting  of  the  Aircraft  Board 
and  the  Army  and  Navy  technical  board.  It  was  for  an  eight- 
cylinder  engine  that  was  to  develop  somewhere  around  300  horse- 
power. 

The  joint  board  approved  the  design  and  forthwith  orders  were 
telegraphed  to  various  shops  to  make  the  different  parts  instanter. 
Draftsmen  worked  feverishly  over  drawings,  and  there  was  much 
rushing  back  and  forth. 

Then,  on  July  3,  twenty-eight  days  later,  the  parts  were  brought 
together  from  far  and  near  and  assembled  into  a  motor  that  worked 
like  a  charm. 

However,  on  foreign  advice  it  was  decided  to  increase  the  motor's 
power  and  make  it  a  twelve-cylinder  type.  The  twelve-cylinder 
model  passed  all  tests  with  flying  colors  on  August  25.  A  trip  to 
Pike's  Peak  gave  it  an  altitude  experience.  There  were  more  draw- 
ings and  more  consultations  and  more  changes,  and  finally,  after 
August  25,  the  motor  was  ordered  into  quantity  production.  On 
October  29  the  first  motor  that  could  be  roughly  called  the  result  of 
quantity  production  was  tried  in  a  De  Haviland  4,  at  Dayton,  Ohio. 
The  result  was  so  satisfactory  that  everybody  thought  it  was  all  over 
but  the  shouting  for  both  plane  and  engine. 

But  presently  troubles  began  to  develop.  Howard  Coffin,  chair- 
man of  the  Aircraft  Board,  then  appointed  a  committee  of  engineers 
to  find  out  what  the  trouble  was.  This  committee  soon  found  that 
various  parts  of  the  motor  were  not  strong  enough  and  that  others 
were  not  well  adapted  to  it.  The  connecting-rods  were  found  to  be 
weak.  The  lubrication  system  worked  splendidly  on  the  ground  but 
was  inefficient  in  the  air.  The  crankshaft  was  not  strong  enough, 
and  so  on. 

This  committee  insisted  on  changes.  Program  or  no  program, 
they  said,  America  could  not  afford  to  have  anything  but  the  best. 
It  would  never  do  to  let  a  motor  of  exceptional  design  be  ruined  by 
mistakes  in  the  parts.  There  was,  of  course,  some  trouble  in  getting 

1  Adapted  from  the  Literary  Digest,  July  13,  1918,  pp.  21-22. 


104  ECONOMICS  OF  WAR 

the  right  amount  of  radiation.  There  always  is  in  motors,  and  always 
will  be.  Sufficient  radiation  for  the  ground  is  too  much  for  12,000 
feet.  You  must  have  too  much  or  too  little  at  some  time.  Finally, 
however,  a  satisfactory  compromise  was  arranged  in  radiation. 

It  was  not  until  April  28  that  the  committee  of  engineers  made 
its  final  fifty-hour  tests  on  motors  with  all  the  essential  changes  and 
improvements  installed.  Besides  these  basic  changes  there  were  a 
great  many  lesser  alterations  suggested,  chiefly  by  the  manufacturers, 
who  kept  in  touch  with  each  other  through  an  unofficial  committee 
and  passed  on  all  changes  as  they  were  suggested.  The  strengthening 
of  the  connecting-rods  was,  however,  the  chief  cause  of  delay.  That 
set  back  real  quantity  production  at  least  seventy-five  days. 

In  April  the  motors  began  to  come  out  at  the  rate  of  fifteen  or 
twenty  a  day.  Production — now  fifty  a  day — increases  in  volume 
weekly. 

Testimony  to  the  value  of  this  motor  was  given  in  London  on 
June  26  by  Sir  William  Weir,  new  Secretary  to  the  Air  Ministry. 

The  results  of  the  experiments  so  far  obtained  have  placed  the 
engine  in  the  very  first  line  of  aeromotors.  It  is  well  understood  that 
some  criticism  will  be  directed  against  the  slowness  of  production  of 
these  motors  during  the  last  three  or  four  months,  but  I  would  like 
to  point  out  that  a  considerable  interval  will,  and  always  must,  elapse 
between  the  experimental  and  commercial  production  of  any  new 
motor. 

Every  engine,  even  the  best  designed  and  in  a  country  with  the 
greatest  resources  and  facilities,  cannot  escape  a  period  of  what  may 
be  called  'teething  troubles'  before  the  motors  can  be  produced  on 
anything  like  a  large  scale.1 

4.    THE  INSATIABLE  DEMAND  FOR  MUNITIONS2 

When  an  attack  is  planned  against  a  securely  entrenched  enemy, 
with  barbed  wire  everywhere,  with  elaborate  communication  trenches, 
and  powerful  long-range  supporting  artillery,  the  first  necessity  is  to 
break  down  the  wire  and  smash  his  first  line  of  trenches.  This 
means  a  heavy  expenditure  of  field  artillery,  shrapnel,  and  trench 

1  As  the  report  of  the  Thomas  committee  shows,  delays  have  in  part  been 
due  to  mismanagement  and  favoritism. — ED. 

2  By  the  Right  Hon.  Edwin  Montagu.     From  a  speech  delivered  before  the 
House  of  Commons,  August  15,  1916. 

ED.  NOTE. — Mr.  Montagu  is  director  of  the  British  Ministry  of  Munitions. 


NATURE  OF  MODERN  WAR  105 

mortar  bombs  for  wire  cutting,  and  heavy  howitzer  shells  for  trench 
destruction.  If  this  task  is  inadequately  performed,  if  the  wire 
checks  the  infantry,  if  machine-gun  emplacements  remain  intact,  the 
attack  fails,  and  fails  with  horrible  results.  When  the  bombardment 
has  disclosed  to  the  enemy  an  impending  attack,  the  enemy  tries  to 
stop  it  by  curtain  fire.  During  the  bombardment  the  enemy,  from 
his  observation  posts,  is  constantly  watching  for  the  infantry  assault. 
He  concentrates  a  converging  fire  from  hundreds  of  long-range  guns 
upon  the  trench  area  from  which  the  infantry  must  debouch.  That 
fire  has  got  to  be  subdued,  or  the  attack  takes  place  under  a  perfect 
tornado  of  projectiles;  hence  the  necessity  for  counter-battery  work. 
An  immense  expenditure  of  shells  from  long-range  guns,  controlled 
from  the  air,  whence  alone  the  fire  can  be  directed  at  the  enemy's 
guns,  goes  on  whenever  aerial  observation  is  possible.  The  guns  are 
well  entrenched,  and  this  runs  away  with  an  enormous  amount  of 
heavy  and  medium  ammunition.  Next  the  attack  takes  place.  Its 
flanks  have  got  to  be  protected,  and  while  the  infantry  is  engaged  in 
facing  the  parapet  of  the  captured  trenches  the  other  way  they  have 
got  to  be  protected  from  counterattack.  A  counterattack  begins 
by  the  enemy's  bombers  coming  down  the  communication  trenches 
and  bombing  the  captured  trenches.  They  cannot  be  seen — cannot 
be  spotted  from  the  artillery  observation  posts.  The  only  means  of 
dealing  with  them  is  to  direct  a  barrage  fire  which  sweeps  every  com- 
munication trench,  leaving  nothing  to  chance.  Later  the  enemy's 
more  formidable  counterattack  comes  along.  It  is  organised  under 
cover  of  concentrated  artillery  fire  by  means  of  massed  infantry  from 
the  support  trenches.  The  success  of  these  attacks  has  not  only  got 
to  be  prevented,  but  the  enemy  must  not  be  allowed  to  formulate 
them.  So  the  successful  infantry  must  be  protected  on  its  flanks 
and  front  by  barrage  fire  of  shrapnel  and  high  explosives  directed 
against  the  enemy's  support  trenches,  where  the  infantry,  unseen,  are 
organizing  for  the  counterattack. 

Finally,  to  be  able  to  press  on  successfully  from  one  attack  to  the 
next,  the  resisting  power  of  the  enemy  must  be  worn  down  by  want 
of  rest,  of  relief,  of  food.  All  day  and  all  night  the  approaches  to  his 
trenches  must  be  kept  under  fire  to  prevent  relief  coming  to  his  men, 
to  prevent  the  replenishment  of  ammunition  supplies,  and  to  prevent 
his  obtaining  food  and  rest.  If  you  add  one  more  detail,  what  I 
believe  the  French  call  tire  de  demolition,  which  is  directed  by  the 
very  heaviest  howitzer  guns  against  especially  fortified  nodes  which 


106  ECONOMICS  OF  WAR 

are  dotted  about  the  area  of  the  German  lines,  and  consider  all  the 
operations  which  I  have  described,  wonder  ceases  that  you  want  so 
much  ammunition.  The  only  marvel  that  remains  is  that  you  can 
ever  produce  enough  to  sustain  the  attack  which  goes  on  week  after 
week,  day  and  night,  with  varying,  but  always  with  sustained, 
intensity. 

5.    A  MORNING'S  WORK  IN  THE  MINISTRY  OF 
MUNITIONS1 

I  want  to  give  the  House  a  trivial  illustration,  if  I  may,  of  the 
variety  of  matters  with  which  the  Ministry  deals.  When  I  was  told 
that  I  had  to  make  a  statement  on  the  Munitions  Department,  I  cast 
my  thoughts  back  over  the  matters  with  which  I  had  to  deal  on  that 
particular  day.  I  began  with  a  friendly  controversy  with  a  govern- 
ment office  about  the  transport  from  near  the  Arctic  Circle  to  a 
neutral  country  of  a  mineral  the  name  of  which  was  unknown  to  me, 
but  which  I  was  assured  was  the  limiting  factor  in  the  output  of 
certain  indispensable  munitions.  I  went  on  to  discuss  the  question 
as  to.  whether  we  should  press  the  India  office,  in  the  interests  of  the 
munitions  supply,  to  construct  a  certain  railway  line  in  a  remote 
part  of  India.  There  was  a  question  of  certain  measures  affecting 
the  output  of  gold  in  South  Africa.  There  was  a  discussion  as  to  the 
allocation  of  a  certain  chemical,  very  limited  in  quantity,  to  meet  the 
competing  needs  of  the  Army,  the  Navy,  and  the  Air-Service.  There 
was  a  deputation  from  an  important  educational  institution  asking 
to  be  allowed  to  continue  certain  building  operations.  There  was  a 
discussion  about  the  men  deported  from  the  Clyde.  There  was  a  dis- 
cussion on  certain  contracts  in  America  valued  at  over  10,000,000 
pounds  sterling.  In  the  course  of  the  morning  the  Munitions  Inven- 
tions Department  brought  to  see  me  some  walking  specimens  of 
exceedingly  ingenious  artificial  legs.  There  was  a  conference  on  the 
allocation  of  highly  skilled  workmen  of  a  particular  class  amongst 
competing  firms.  There  was  a  discussion  as  to  the  quickest  means  of 
manufacturing  gun  carriages.  There  were  a  hundred  and  one  topics 
which  must  confront  any  body  of  men  who  spend  their  whole  days 
watching  curves  which  ought  to  go  up  and  figures  which  ought  always 
to  swell;  reading  reports  from  all  parts  of  the  world,  and  confronted 

1  By  the  Right  Hon.  Edwin  Montagu  (see  p.  104).  From  a  speech  delivered 
before  the  House  of  Commons,  August  15,  1916. 


NATURE  OF  MODERN  WAR  107 

always  with  the  cry:    "More,  more,  more!"  and  "Better,  better, 
better!" 


IX.    The  Relation  of  Science  and  Industry  to  War 
i.    THE  SCIENTIFIC  BASIS  OF  WAR  TECHNIQUE1 

The  chemists  say  this  is  the  chemists'  war,  the  engineers  claim  it 
as  theirs,  while  a  distinguished  French  physicist  calls  the  struggle 
"a  grandiose  physical  phenomenon,"  and  the  medical  and  surgical 
fraternity  demonstrate  that  prevention  from  epidemics  and  rendering 
possible  the  return  to  the  front  some  three-fourths  or  more  of  all 
invalided  and  wounded  has  made  the  continuance  of  trench  warfare 
possible. 

Verdun  has  been  named  "the  metallurgical  battle"  and  also  "the 
battle  of  the  trucks,"  referring  in  the  first  case  to  the  importance  of 
the  iron-ore  deposits  of  the  Briey  region  located  a  few  miles  to  the 
northeast,  and  in  the  second  to  the  vast  numbers  of  automobile 
trucks  employed  by  the  French  on  the  only  highway  open  at  the 
outbreak  of  the  battle. 

The  meteorologist  is  listened  to  with  attention  by  the  Great 
Headquarters,  as  was  the  astrologer  of  yore,  before  an  extensive 
offensive  is  undertaken ;  and  the  geologist  is  consulted  for  information 
as  to  where  to  halt  and  dig  in,  where  shelters  may  be  safely  built,  and 
as  to  the  probability  of  underground  waters.  Even  the  astronomer's 
services  are  considered  of  great  importance,  for  example,  in  the 
preparation  of  new  artillery  tables  and  maps,  the  improvement  and 
invention  of  instruments  which  differ  but  slightly  in  principle,  how- 
ever much  they  may  differ  in  the  nature  of  their  use,  from  those 
with  which  he  is  familiar.  Again,  the  statistician  is  a  most  valu- 
able person  when  an  offensive  is  being  planned.  Also  France, 
at  least,  has  found  the  mathematician  indispensable,  for  in  the 
person  of  M.  Painleve  he  sits  at  the  head  of  them  all  as  Minister 
of  War,  whose  civil,  technical  staff  is  largely  made  up  of  eminent 
members  of  the  same  profession.  Is  this  then  a  mathematicians' 
war? 

1  By  George  K.  Burgess.  Adapted  from  "Applications  of  Science  to  Warfare 
in  France,"  Scientific  Monthly,  V,  289-97. 

ED.  NOTE. — George  K.  Burgess  (1874 — )  is  a  prominent  physicist,  now  chief 
of  the  Division  of  Metallurgy  in  Washington.  He  is  an  author  and  translator 
of  many  metallurgical  works. 


io8  ECONOMICS  OF  WAR 

In  truth,  chemistry,  physics,  hygiene,  mathematics,  engineering, 
geography  and  geodesy,  metallurgy,  geology,  bacteriology,  mete- 
orology, or  pretty  much  the  whole  curriculum  of  physical  and  natural 
sciences  and  their  applications  are  each  of  them  fundamentally  essen- 
tial in  modern  warfare,  some  of  course  more  apparently  so  than 
others,  but  almost  none  could  be  spared  and  the  war  carried  on 
successfully. 

Two  most  important  corollaries  immediately  suggest  themselves: 

First,  the  war  can  not  be  successfully  prosecuted  if  there  is  lacking 
any  of  the  necessary  raw  materials,  including  chemical,  physical,  and 
metallurgical  supplies  such  as  nitrates,  optical  glass,  coal,  and  steel, 
to  name  but  a  few.  The  operations  of  modern  warfare  are  so  complex 
and  interrelated  that  the  want  of  crucial  supplies  in  one  domain  may 
seriously  hamper  all;  hence  the  phenomenon  of  which  there  are 
instances  innumerable,  of  intensive  scientific  research  in  the  develop- 
ment of  substitutes  as  one  or  another  essential  material  becomes  scarce. 

Second,  modern  warfare  can  be  waged  successfully  only  by  the 
proper  organization  of  these  diverse  scientific  elements  in  addition  to, 
and  coordinated  with,  or  incorporated  in,  the  military  establishments. 

In  a  completely  mobilized  country,  such  as  France,  it  is  essential 
that  each  man  in  the  community,  which  is  nearly  identical  with  the 
military  establishment,  be  assigned  to  the  task  for  which  he  is  best 
fitted — or  there  must  be  scientific  organization  and  management  to 
secure  the  country's  greatest  possible  efficiency. 

What  is  this  organization?  How  and  to  what  extent  are 
the  sciences  used  in  warfare?  And  how  are  the  scientific  men 
mobilized  or  otherwise  made  use  of  ?  A  brief  statement  of  some  of 
the  impressions  gained  during  a  three  months'  stay  in  England  and 
France  may  not  be  without  interest. 

The  most  striking  impression  brought  home  is  one  of  unity  of 
purpose,  perfect  adaptation  and  coordination  of  the  several  branches; 
a  harmonious  whole,  in  fact,  made  up  of  separate  and  often  highly 
intricate  parts  constituting  an  organization  in  which  all  the  sciences 
and  their  applications  blend  into  one,  which  is  focused  by  the  admir- 
ably trained  technical  and  staff  officers  on  the  sole  object  of  destroying 
the  enemy.  The  French  traits  of  individuality,  initiative,  and  self- 
reliance,  are,  however,  in  no  sense  lessened  or  dulled  by  this  coopera- 
tion. 

What  are  some  of  the  component  parts  of  this  unity  in  scientific 
warfare?  We  shall  mention  but  a  few  in  illustration  of  the  whole. 


NATURE  OF  MODERN  WAR  109 

Let  us  first  consider  examples  of  the  applications  of  physics  to  warfare, 
some  of  which  owe  much  of  their  efficacy  to  the  relative  immobility 
of  the  front. 

Of  all  the  branches  of  this  science  the  one  that  had  in  recent  years 
been  lagging  behind  the  others  and  to  whose  development  the  least 
attention  was  being  paid,  was  acoustics;  yet  it  is  not  an  exaggeration 
to  say  that  the  application  of  the  principles  of  acoustics,  or  sound,  is 
of  the  greatest  importance  at  the  front. 

One  of  the  most  highly  developed  is  the  location  of  enemy  guns, 
concerning  the  details  of  which  a  volume  could  be  written;  suffice 
it  to  say  that  in  the  French  armies  there  are  several  systems  in  use, 
all  of  which  will  locate  to  within  a  few  yards  an  enemy  battery  at  ten 
or  twenty  kilometers,  indicate  the  caliber  of  the  guns,  differentiate 
between  the  sounds  of  discharge,  flight  through  the  air,  and  bursting, 
and  record  each  and  every  separate  shot;  and  the  spot  from  which  the 
shot  was  fired  may,  under  certain  conditions,  be  located  before  the 
shell  bursts.  There  have  been  developed  several  ingenious  listening 
devices  built  on  entirely  different  acoustical  principles  for  use  in  mine 
warfare,  by  means  of  which  enemy  mining  operations  may  be  exactly 
located.  Again,  for  the  location  of  sounds  in  the  air,  especially  useful, 
for  example,  in  locating  airplanes  at  night,  several  new  types  of  sound 
apparatus  of  extreme  sensitiveness  are  in  use.  For  submarine 
detection  some  of  the  most  promising  methods  for  further  improve- 
ment are  based  on  the  use  of  still  other  sound-detecting  devices. 
Wonderfully  powerful  megaphones  for  use  in  battle  have  also  been 
developed.  Acoustics  as  an  active  branch  of  physics  has  most 
decidedly  come  into  its  own. 

In  photography  and  the  technique  of  photographic  map  making 
there  have  been  great  improvements,  brought  about  directly  by 
military  necessity,  especially  in  aerial  photography,  apparatus,  and 
interpretation.  One  of  our  most  interesting  visits  at  the  front  was 
to  the  photographic  headquarters  of  a  French  army  corps,  where  we 
listened  to  an  admirably  delivered,  illustrated  lecture  on  the  taking 
and  interpretation  of  aerial  photographs.  The  art  of  map  making 
from  photographs,  as  carried  out  at  the  front,  is  practically  a  new 
branch  requiring  great  skill,  and  is  evidently  of  the  first  importance, 
as  oftentimes  the  success  of  an  offensive  is  largely  dependent  upon 
the  quality  of  this  work. 

As  would  be  expected,  there  have  been  not  a  few  advances  made 
in  applications  of  electricity,  especially  wireless  apparatus  and 


no          •  f    •  ECONOMICS  OF  WAR 

methods,  signalling  and  listening  devices.  There  may  be,  for  example, 
during  a  battle  more  than  1,500  separate  wireless  stations  sending 
messages  simultaneously;  provision  is  successfully  made  for  prevent- 
ing interference  and  sorting  out  this  great  mass  of  signals  so  as  to 
avoid  confusion.  Portable  wireless  outfits  are  supplied  by  the  tens 
of  thousands — requiring  for  the  construction  of  these  instruments 
alone  a  veritable  army  of  skilled  mechanics. 

The  reading  public  is  perhaps  more  familiar  with  some  of  the 
applications  of  chemistry  to  warfare,  such  as  the  asphyxiating,  tear- 
producing,  and  other  noxious  gases  used  in  waves  or  clouds  and  lately 
more  and  more  in  shells;  and  the  importance  of  nitric  acid,  toluol, 
and  the  like  has  been  impressed  on  everyone.  The  stupendous  scale 
on  which  such  substances  must  be  produced  to  keep  up  with  the 
demands  of  the  armies  is  perhaps  not  sufficiently  realized,  nor  is  there 
any  adequate  appreciation  of  the  amount  of  scientific  investigation 
being  carried  out.  In  France  I  understand  there  are  some  twenty- 
five  distinct  laboratories  engaged  in  nitrogen-fixation  research  alone. 

Turning  now  to  meteorology,  what  has  the  weather  man  to  do 
with  war  ?  He  too  plays  a  capital  role.  With  his  sounding  balloons 
he  keeps  the  troops  informed  as  to  when  a  gas  attack  may  be  expected 
and  when  it  would  be  profitable  to  start  one;  the  artillery  depends  on 
him  for  data  to  calculate  important  corrections,  as  for  wind,  humidity, 
pressure,  and  temperature  and  upper-air  conditions  in  sighting  their 
guns;  the  aviators  as  to  prevailing  winds,  especially  high  up,  and  for 
general  weather  conditions;  the  balloon  men  keep  in  close  touch  with 
him,  and  even  the  transport  service  depends  upon  him  for  advance 
information  as  to  muddy  roads;  headquarters  relies  upon  him  for 
knowledge  of  impending  fog  or  rain  and  other  changes — the  weather 
man  has  a  very  heavy  responsibility  in  helping  to  decide  the  most 
propitious  moment  for  an  attack  on  a  grand  scale,  and  if  his  forecast 
is  erroneous,  disaster  may  result. 

An  impressive  sight  on  the  French  front  was  the  firing  of  a  battery 
of  320-mm.  (i3-inch)  cannon,  mounted  on  railway  trucks,  at  an 
invisible  target  19 . 5  kilometers  distant.  It  took  four  shots  to  accom- 
plish the  end  sought,  which  was  demolishing  an  enemy  battery  that 
had  been  located  the  day  before  by  "  sound  ranging  "  and  photography. 

What  does  such  an  operation  mean  in  preparation  and  execution, 
viewed  as  a  scientific  experiment  ? 

In  the  first  place,  it  presupposes  an  exact  knowledge  of  the  region 
expressed  in  accurate  maps,  including  of  course  territory  in  possession 


NATURE  OF  MODERN  WAR  III 

of  the  enemy.  The  preparation  of  these  maps  is  one  of  the  most 
elaborate  of  the  technical  geographical  services  of  the  army;  this 
service  is  usually  supplemented  when  possible  by  triangulation  from 
fixed  observatories  and  photographic  mapping  from  airplanes  or 
balloons.  It  assumes  further  that  the  cannon  of  the  battery  have,  as 
we  might  say,  been  calibrated,  that  is,  the  characteristics  of  their 
firing  determined  by  shooting  at  a  recognized  and  exactly  located 
object  of  about  the  same  range  and  making  a  known  angle  with  the 
target.  The  relative  positions  of  battery  and  target  and  their  exact 
distance  apart  should  also  be  known.  A  big  gun  is  displaced  some- 
what with  every  shot  fired  and  is  brought  back  to  position  by  refer- 
ence to  a  fixed  base  by  means  of  a  series  of  optical  measurements. 
Some  of  the  allowances  and  corrections  that  have  to  be  made  in  firing 
are:  variations  in  weight  of  projectiles — showing  the  need  of  uni- 
formity, homogeneity,  and  geometrical  exactness  in  their  manu- 
facture— not  a  simple  matter;  weight,  quality,  age,  and  temperature 
of  the  firing  charge — which  gives  but  a  hint  as  to  a  most  elaborate 
series  of  researches  in  the  physical  chemistry  of  ballistics;  the  age, 
state  of  erosion,  and  temperature  of  the  gun — another  series  of 
unsolved  problems;  the  numerous  atmospheric  corrections,  such  as 
direction  and  force  of  the  wind  at  the  various  levels  of  the  trajectory; 
the  temperature,  pressure,  and  humidity  of  the  air,  all  of  which 
produce  disturbances  that  vary  with  the  distance  of  the  target,  or, 
what  is  the  same,  muzzle  velocity  of  the  shot  as  well  as  the  shape  of 
the  shell. 

There  have  been  prepared  elaborate  tables  containing  these 
corrections  and  others  which  are  constantly  being  improved  by 
further  research.  The  theory  of  probabilities  is  also  made  use  of  in  an 
elaborate  way  for  each  caliber  to  control  the  inevitable  dispersion  of 
the  shots  after  all  known  corrections  are  made.  With  all  these  data, 
how  does  the  artillery  officer  know  the  accuracy  of  his  fire  at  a  target 
invisible  to  him  and  20  kilometers  away  ?  If  he  has  the  local  mastery 
of  the  air,  use  is  made  of  airplanes  which  signal  the  location  of  each 
shot;  otherwise  he  must  depend  on  stationary  balloons,  special  ob- 
servatories, or  even  on  his  calculations  alone  if  the  weather  be  bad. 

Finally,  it  is  not  necessary  merely  for  the  shot  to  strike  the  target; 
it  must  explode  at  the  right  instant  and  have  a  suitable  "  fragmenta- 
tion"— here  is  opportunity  for  more  research  in  mechanics,  chemistry, 
and  metallurgy.  Such  in  brief  is  the  mechanism  of  artillery  fire,  for 
the  accomplishment  of  which  many  of  the  sciences  collaborate,  and 


112  ECONOMICS  OF  WAR 

for  the  rendering  it  more  exact  there  is  still  room  for  considerable 
research  in  astronomy,  geodesy,  metallurgy,  chemistry,  physics,  and 
meteorology. 

We  have  not  touched  upon  the  applications  of  science  in  the 
various  branches  of  military  engineering,  some  of  which  are  new  in 
this  war,  requiring  the  highest  directing,  technical  talent,  and  thou- 
sands of  workmen;  the  advances  in  medicine,  sanitation,  and  surgery 
have  not  been  treated,  nor  have  we  mentioned  trench  warfare  with 
its  manifold  engines,  appliances,  and  materials,  necessitating  the 
creation  of  new  industries  accompanied  in  all  cases  by  elaborate 
scientific  research.  Gas  warfare  alone  is  based  on  what  is  literally 
a  stupendous  industry  requiring  the  employment  of  chemists  and 
other  scientifically  trained  men  on  a  great  scale.  Again  there  are 
large  and  very  active  laboratories  maintained  for  the  examination  of 
enemy  munitions  and  appliances  of  all  kinds,  and  for  the  development 
of  new  and  improved  types. 

Examples  enough  have  been  given  to  impress  upon  the  reader, 
I  hope,  the  tremendous  magnitude,  enormous  scope,  and  far-reaching 
extent  of  the  problem  of  modern  warfare  looked  at  from  the  point  of 
view  of  the  applications  of  science -and  the  employment  of  scientific 
and  technical  men. 

The  wonderful  organization  was  not  all  built  up  in  a  day,  neither 
were  mistakes  avoided,  nor  could  all  the  developments  that  have 
taken  place  been  foreseen.  In  the  early  days  of  the  war  men  were 
sent  to  the  front,  whose  brains  to-day  would  be  an  invaluable  asset; 
national  laboratories  were  almost  depopulated;  the  military  author- 
ities were  indifferent  to  advice  from  civilian  specialists.  To-day  one 
would  be  embarrassed  to  decide  whether  an  officer,  in  one  of  the 
specialized  services  was  an  officer  before  the  war  or,  let  us  say,  a 
professor  of  chemistry.  The  national  laboratories  have  been  multi- 
plied tenfold ;  and  such  care  is  now  taken  to  protect  productive  brains 
that  it  may  happen  that  the  inventor  of  a  new  device  is  not  allowed 
to  go  to  the  front  to  try  it  out. 

2.    THE  UTILIZATION  OF  INDUSTRY1 

We  must  ask  the  reader  to  take  us  quite  literally  when  we  state 
that  the  whole  of  the  living  forces  of  the  country  are  absorbed  in  war. 

1  By  Georges  Blanchon.  Adapted  from  The  New  Warfare,  pp.  43-54. 
Translated  by  Fred  Rothwell.  Published  by  Thomas  Y.  Crowell  Co. 

ED.  NOTE. — Georges  Blanchon  is  an  eminent  French  authority  on  naval  war- 
fare and  the  development  of  the  submarine. 


NATURE  OF  MODERN  WAR  113 

Youths  are  recruited  at  the  age  of  eighteen,  and  men  up  to  forty-seven 
or  forty-eight,  in  Austria  perhaps  even  up  to  fifty.  Within  a  few 
months  a  total  of  about  thirty  million  Europeans  were  summoned  to 
arms.  This  figure  alone  shows  us  that  the  expression  "a  nation  in 
arms"  is  no  longer  an  extravagant  figure  of  speech — it  is  nothing  but 
the  strict  truth. 

This,  however,  is  but  a  part  of  the  forces  employed  in  war,  though 
indeed  the  part  most  in  evidence.  Formerly  the  army,  with  its 
military  personnel,  was  almost  self-sufficient;  at  the  present  time 
huge  public  departments  have  been  militarized  and  organized  for  war 
purposes. 

First,  the  railways — the  initial  concentration  and  mobilization  of 
our  troops  alone  have  necessitated  thousands  of  trains.  They  are 
needed  for  every  advance,  withdrawal,  or  lateral  movement.  The 
services  in  the  rear — supplies,  munitions,  reinforcements,  wounded 
men — keep  the  lines  permanently  busy  not  only  at  the  front  but  right 
back  to  the  very  heart  of  the  country.  Consequently  there  is  an 
entire  staff  attached  to  the  army  for  purposes  of  transport  by  rail. 

Analogous  are  the  sanitary  and  medical  services.  Controlled  by 
the  army  doctors,  this  department  finds  employment  not  only  for  a 
strictly  military,  but  also  for  a  semicivilian,  personnel:  a  large  and 
effective  force,  especially  in  auxiliary  hospitals.  Thus  we  have  non- 
mobilized  local  surgeons,  voluntary  nurses  and  orderlies,  Red  Cross 
ladies,  Boy  Scouts,  etc. 

A  third  class  is  engaged  in  munition  work.  The  public  arsenals 
employ  workmen  who  are  sometimes  under  military  rule  and  whose 
numbers  are  largely  increased  in  war-time.  Arsenals,  however,  are 
insufficient;  in  every  belligerent  country  the  widest  appeal  has  been 
made  to  private  industry.  An  article  which  appeared  in  the  Thur- 
gauer  Zeitung  at  the  end  of  1914  stated  that  the  number  of  Krupp's 
workmen  at  Essen  had  risen  from  forty-two  thousand  to  sixty  thou- 
sand since  the  opening  of  hostilities.  Everything  in  the  form  of  a 
machine  workshop  or  a  chemical  works,  or  that  could  be  transformed 
into  either  of  these,  has  been  either  requisitioned  or  invited  to  take 
a  share  in  the  manufacture  of  munitions.  All  over  the  country  are 
being  made  firearms,  projectiles,  trench-digging  tools,  barbed  wire, 
motor-cars,  aeroplanes,  uniforms,  tinned  food  for  the  army,  etc. 

Thus  we  find,  along  with  those  who  are  mobilized,  great  numbers 
of  workers  not  only  paid  but  frequently  controlled  by  the  war, 
indispensable  to  its  success  and  devoted  to  the  national  task.  Those 


114  ECONOMICS  OF  WAR 

exempt  from  military  claims,  either  by  reason  of  age  or  of  ill  health, 
are  invited,  as  also  are  foreigners,  to  collaborate  voluntarily  in  the 
defence  of  the  country.  Nor  do  the  public  powers  officially,  and 
corporate  bodies  in  their  private  capacity,  fail  to  put  the  requisite 
pressure  on  shirkers. 

England  had  to  organize  intensive  recruiting  of  the  ''industrial 
army,"  with  the  help  of  the  trade  unions.  In  London  hundreds  of 
offices  were  opened  in  town  halls  and  labour  exchanges.  Those  who 
enrolled  themselves  undertook  to  work  for  a  period  of  six  months 
under  the  control  of  the  government,  wherever  the  latter  might  send 
them;  and,  if  the  conditions  of  engagement  were  broken,  to  recognize 
the  jurisdiction  of  a  special  court.  Moreover,  another  law  ordered 
the  preparation  of  a  national  register,  so  that  all  who  were  fit  might  be 
called  on  either  to  bear  arms  or  to  help  in  the  production  of  war 
material. 

Thus  along  with  compulsory  military  service  to  the  age  of  forty, 
which  has  now  become  law,  compulsory  industrial  service  is  implied, 
potentially  at  all  events,  in  the  British  organization. 

Indeed  a  threatened  nation  may  be  compelled  to  requisition 
labour,  for  huge  production  becomes  a  public  necessity.  The  question 
is  perfectly  simple  and  clear  in  the  case  of  workmen  already  mobilized, 
who  from  the  front  have  been  sent  back  to  their  workshops.  On 
resuming  work  at  their  trade  they  remain  under  military  law;  they 
do  not  cease  to  be  soldiers;  they  are  soldiers  in  a  latent  state,  to  adopt 
a  medical  term. 

In  fact,  those  who  have  technical  experience  in  the  various 
branches  of  activity  indispensable  to  warfare — engineers,  managers 
of  works,  foremen,  specialists  in  some  particular  industry,  private 
surgeons,  radiographers,  etc. — are  now  more  usefully  employed  in 
carrying  on  their  own  work  than  on  the  battle-field. 

Things  do  not  stop  here.  However  desirous  we  may  be  of 
preventing  it,  innumerable  business  transactions  are  bound  to  become 
more  or  less  intimately  concerned  with  warfare.  Only  by  an  intense 
flow  of  importation  does  the  state  maintain  its  stock  of  provisions 
and  raw  material.  The  majority  of  its  orders  are  given  private 
dealers,  with  whom  it  generally  draws  up  long-period  contracts.  It 
is  to  the  interest  of  the  state  to  leave  at  their  disposal  the  men  they 
need  to  serve  it. 

Thus,  in  France,  conscripted  seamen  engaged  in  commercial 
navigation  have  not  been  summoned  back  to  the  flag.  Not  content 


NATURE  OF  MODERN  WAR        .  115 

with  facilitating  the  recruiting  of  the  personnel  and  actually  supplying 
it  in  case  of  need,  the  state,  by  means  of  its  navy,  assures  the  protection 
of  the  mercantile  fleet  even  outside  home  waters.  After  giving  its 
orders  and  deciding  upon  freight  and  route,  it  dictates  to  the  owners 
the  safeguards  to  be  adopted  in  order  to  avoid  danger.  In  France  and 
England  alike  it  supplies  ships  with  anti-submarine  guns.  It  exercises 
all  the  more  detailed  and  careful  supervision  over  ship-building,  be- 
cause the  merchant  fleet  is  a  most  important  instrument  for  the  direct 
supply  of  national  needs.  Briefly,  the  fact  that  civil  populations 
have  to  be  supplied  with  food  gives  the  mercantile  marine  an  alto- 
gether special  importance.  As  we  see,  maritime  transport  is  very 
largely  devoted  to  the  public  service;  almost  everywhere  it  bears  the 
stamp  of  this  in  the  status  of  its  staff. 

We  shall  be  led  to  deal  in  a  like  manner  with  other  industries, 
such  as  mining.  The  state,  by  assuming  control  of  their  productive 
effort,  which  conditions  the  operations  of  its  armies,  makes  them,  so 
to  speak,  an  expansion  of  military  activities. 

Even  now  we  see  that  German  submarines  no  longer  distinguish 
between  war  vessels  and  merchantmen;  the  destruction  too  of  coal 
mines  and  manufactories  is  clearly  an  integral  part  of  the  new  strategy, 
for  which  it  becomes  an  end  in  itself.  Everywhere  attempts  are  made 
to  destroy  the  crops  or  to  raid  the  provisions  of  the  invaded  countries. 

Thus  the  peaceful  occupations  of  commerce  and  industry  are 
voluntarily  torn  from  the  sphere  of  private  interests,  once  respected 
in  war,  to  be  flung,  as  human  life  and  property  have  been,  into  the 
devastating  whirlwind. 

Everything  keeps  alive  a  state  of  confusion;  there  is  nothing 
strictly  private  nowadays.  As  both  soldiers  and  civilians  have  to 
be  fed  and  clothed,  warmed  and  kept  under  cover,  all  sources  of 
production,  one  after  another,  become  national  concerns.  In  order 
to  carry  on  the  struggle  longer  than  the  adversary,  it  is  important  to 
retain  in  their  occupations  a  certain  number  of  fishermen,  cattle- 
breeders,  farmers,  and  agricultural  labourers,  etc.  Consequently  the 
various  tasks  ought  to  be  distinctly  assigned  beforehand,  each  man,  in 
all  essential  trades,  having  his  allotted  part  and  his  instructions,  as 
in  the  mobilized  army.  On  the  day  when  one  of  the  belligerents  shall 
have  thus  completely  organized  the  arrangement  and  disposition  of 
its  human  resources,  it  will  derive  thereby  such  power  of  resistance 
that  its  rivals  will  be  compelled  either  to  imitate  it  or  to  lapse  into  a 
fatal  inferiority. 


Il6  ECONOMICS  OF  WAR 

3.    THE  MILITARY  USE  OF  RAILWAYS1 

It  is  now  quite  clear  that  future  wars  will  be  very  different  from 
those  of  the  past.  What  we  see  at  present  warrants  the  conclusion 
that  they  will  effect  a  profound  transformation  in  the  life  of  the 
nations.  The  social  aspect  of  war  is  something  quite  new ;  its  material 
aspect  will  be  no  less  so. 

In  this  new  warfare  means  of  transport  have  assumed  a  supremely 
important  place.  The  first  of  these  is  the  railway.  A  single  train  is 
capable  of  carrying  an  infantry  battalion  or  a  battery  of  field  artillery; 
and  to  transport  an  army  corps — thirty  thousand  combatants — fifty 
or  a  hundred  trains  are  required,  according  as  the  fighting  units  only 
are  taken  or  the  entire  convoy  of  departments  in  the  rear  accompanies 
them. 

The  entraining  takes  some  hours — from  two  to  three  on  an  average. 
This,  however,  depends  largely  on  the  material  to  be  loaded  and  the 
advantages  offered  by  the  station,  such  as  platforms  and  various  other 
contrivances.  The  same  length  of  time  is  required  for  unloading. 
Military  trains  move  at  regulation  speeds  which  do  not  vary:  from 
twenty  to  twenty-eight  miles  an  hour.  They  follow  one  another  at 
regular  intervals:  a  single  track  allows  of  the  passage  of  a  score  of 
trains  in  each  direction  every  twenty-four  hours;  a  double  track 
allows  of  fifty,  sixty,  one  hundred,  or  even  more,  according  to  the 
sidings  and  the  good  working  of  the  block  system.  On  some  days  and 
over  certain  lines  the  total  has  reached  two  hundred  and  twenty. 
Thus  we  see  that  a  double  line  might  carry,  on  an  average,  an  entire 
army  corps  per  day.  But  there  are  many  things  to  take  into  con- 
sideration, especially  junction  lines,  and  it  is  manifestly  of  the  highest 
importance  to  have  large  numbers  of  parallel  tracks.2  In  this  respect 
the  French  "Nord"  system  and  the  German  frontier  systems  offer 
facilities  which  cannot  be  found  on  the  Russian  railways,  for  instance. 

At  first  the  entire  mobilization  and  concentration  was  effected  by 
means  of  the  railways:  In  France  we  required  four  thousand  seven 
hundred  and  fifty  trains.  Everything  was  carried  through  with  the 
utmost  order.  The  army  still  has  a  permanent  need  of  railways  for 
two  purposes:  its  communications  with  the  rear  and  its  movements 
from  place  to  place.  The  former  are  fairly  regular,  the  latter  essen- 

1  By  Georges   Blanchon   (see  p.    112).     Adapted   from  The  New  Warfare, 
pp.  102-112.    Translated  by  Fred  Rothwell.    Published  by  Thomas  Y.  Crowell  Co. 

2  See  selection  XIII,  4,  for  a  description  of  Germany's  strategic  railways. 


NATURE  OF  MODERN  WAR  117 

tially  irregular;  but  since  sudden  necessities  must  be  met  without 
delay,  a  considerable  stock  of  material  is  kept  always  ready,  and  thus 
mobilized.' 

For  the  supply  of  one  army  corps  alone,  it  was  calculated,  before 
war  broke  out,  that  train  loads  aggregating  one  hundred  and  twenty 
tons  per  day  would  be  needed;  experience  has  shown  that  as  the 
stationary  condition  of  the  fronts  causes  the  immediate  exhaustion  of 
all  local  resources,  this  figure  must  be  raised  to  two  hundred  tons. 

It  was  Napoleon  who  said,  "The-strength  of  an  army,  like  momen- 
tum in  mechanics,  is  the  product  of  the  mass  and  the  velocity." 
Now  the  railway  is  a  means  of  communicating  great  velocity  to  great 
masses.  In  a  single  day  a  train  can  travel  to  a  distance  of  six  hundred 
kilometres;  on  foot,  we  cannot  go  more  than  thirty. 

Enemy-surrounded  countries  have  the  advantage  of  interior 
lines  which  enable  them  to  transfer  in  succession  almost  the  whole  of 
their  forces  against  each  of  the  army  groups  threatening  them.  This 
was  the  great  art  of  Napoleon.  Railways  facilitate  these  changes  of 
position.  Frequently  too  they  supply  means  of  warding  off  attacks, 
since  they  offer  considerable  opportunities  for  movements  along 
exterior  lines.  For  instance,  it  is  possible  to  make  the  circuit  of  such 
a  country  as  Poland  in  a  very  few  days,  and  so  to  counterbalance  the 
efforts  of  hostile  reinforcements  which  have  crossed  it  as  the  crow  flies. 

The  gain  in  time  obtained  by  using  interior  lines  is  only  the  excess 
of  the  one  journey  over  the  other.  This  gain  in  time  manifestly 
decreases  as  transport  becomes  more  rapid.  But  to  obtain  the  same 
results  as  in  the  past,  it  would  need  to  be  greater,  because  battles  last 
longer  nowadays.  An  army  was  formerly  put  out  of  action  in  a  few 
days — it  had  no  time  to  obtain  assistance;  to-day  weeks  are  required. 

In  this  respect,  the  march  of  progress  restricts  the  advantages  of 
interior  lines,  as  well  as  the  importance  of  most  strategic  artifices 
and  probably  also  the  predominant  role  played  by  the  great  military 
leaders.  It  makes  more  certain  the  consequences  of  an  all-round 
superiority  of  moral  and  material  forces.  Victory  is  more  the  reward 
of  a  people,  less  the  success  of  one  man. 

The  preparation  of  railways  for  war  uses  is  not  confined  to  the 
planning  of  the  system  itself.  It  extends  to  the  provision  and  adap- 
tation of  stations,  to  the  duplication  of  the  lines,  to  the  defence  of 
bridges  and  other  structures,  to  the  provision  of  rolling-stock.  Con- 
siderable extension  may  be  looked  for  in  all  these  directions.  How- 
ever important  the  motor-car  and  the  aeroplane  may  be  in  military 


Ii8  ECONOMICS  OF  WAR 

transport,  it  is  probable  that  the  railways  will  always  be  the  most 
satisfactory  means  of  conveying  heavy  material. 

The  railway  carriage  itself  can  be  adapted  for  military  uses.  We 
have  tank  cars,  cold-storage  cars,  hospital  trains;  above  all,  we  have 
armoured  trains  and  truck  gun-carriages. 

Railways  will  perhaps  render  more  effective  service  than  ever  in 
the  matter  of  bringing  to  the  required  spot  huge  guns  too  heavy  to 
be  transported  in  any  other  way.  These  will  be  fired  without  leaving 
the  rails.  The  truck  gun-carriage  is  so  arranged  as  to  withstand  the 
recoil;  this  result  is  obtained  by  placing  on  the  ground,  once  the 
carriage  is  stationary,  supports  which  take  the  load  off  the  wheels. 
The  recoil  is  transferred  to  the  ground,  so  that  the  rails  do  not  suffer. 

Whether  the  object  is  to  organize  a  supply  line,  to  transfer  rein- 
forcements, or  to  carry  heavy  material  to  its  destination,  it  may  be  of 
service  to  provide  for  the  absence  of  normal  lines  by  laying  down  rails 
along  the  road.  Both  the  Germans  and  ourselves  have  done  this  very 
frequently.  A  narrow  gauge  of  sixty  centimetres  is  generally  used. 
A  team  of  skilled  sappers  takes  about  three  hours  to  lay  down  about 
one  kilometre  of  railway. 

All  great  armies  have  in  reserve  stocks  of  rails,  along  with  their 
sleepers.  It  may  be  possible  to  carry  preparations  further  by  per- 
manently fitting  up  along  the  roads  themselves  whatever  would  not 
interfere  with  their  normal  use,  and  more  particularly  by  laying  tracks 
on  the  footpath  on  one  side  of  the  road,  and  simply  overlaying  them 
with  a  footboard.  This  system  might  be  applied  even  to*  broad- 
gauge  lines.  Stores  of  material  might  be  kept  at  various  distances 
along  the  line  and  the  necessary  sidings  be  provided.  A  great  number 
of  auxiliary  lines  thus  fitted  out  in  the  rear  of  an  army  would  prove 
extremely  useful. 

4.     INDUSTRIAL  ENERGY  AS  A  MILITARY  WEAPON1 

Why  has  Germany,  with  only  the  aid  of  her  feeble  Austrian  ally, 
been  able  so  far  to  withstand  the  rest  of  Europe  ?  It  is  because  she 
is  twenty  years  ahead  of  the  average  of  her  opponents  in  industrial 
energy  and  the  use  of  machinery.  Suppose,  for  the  sake  of  illustration, 
that  the  states  of  the  Union  should  once  more  engage  in  civil  war,  and 

1  By  James  R.  Finlay.  Adapted  from  an  address  before  the  Mining  and 
Metallurgical  Society,  of  America.  Printed  in  its  Bulletin  No.  86. 

James  R.  Finlay  (1869 — )  is  a  prominent  mining  engineer  and  has  written 
extensively  on  mining  problems. 


NATURE  OF  MODERN  WAR  119 

that  Illinois,  Indiana,  Michigan,  Ohio,  Pennsylvania,  New  York, 
Connecticut,  and  New  Jersey  should  form  a  combination  to  resist  the 
rest.  Suppose  for  full  measure  we  throw  in  Mexico  and  South  America 
as  opponents  of  this  bit  of  territory.  We  would  then  have  a  popula- 
tion of  40,000,000  in  a  territory  of  285,000  square  miles  fighting  a 
population  of  150,000,000  occupying  a  territory  of  15,000,000  square 
miles.  Which  would  be  likely  to  win  ?  I  may  be  foolish,  but  it  seems 
to  me  that  the  group  of  states  between  New  York  and  Chicago  would 
probably  win  decisively.  Why?  Because  in  that  area,  producing 
75  per  cent  of  the  coal  and  making  87  per  cent  of  the  iron  of  the 
country,  there  is  almost  a  monopoly  of  the  organized  manufacturing 
and  engineering  energy  of  the  Western  Hemisphere.  The  area 
contains  practically  all  the  plants  capable  of  manufacturing  arms, 
munitions,  and  special  devices.  In  this  territory  we  have  not  only 
the  plants  but  the  trained  population,  the  trained  leaders  and  organ- 
izers. If  we  permit  ourselves  to  imagine  that  this  group  of  states 
was  organized  under  one  efficient  corporation  which  had  the  control 
of  every  citizen  for  the  purpose  of  carrying  on  war,  we  should  have  in 
America  something  like  the  situation  In  Germany  today.  We  could 
well  reject  the  idea  that  the  New  Yorker  or  the  Pennsylvanian  was 
in  the  least  superior  to  the  Canadian  or  the  Texan,  but  that  would 
not  alter  the  fact  that  the  superiority  of  our  group  of  states  in  the 
production  of  munitions,  the  transportation  of  supplies,  the  organiza- 
tion of  effective  effort,  and  its  ability  to  strike  quickly  would  be  very 
great  indeed.  If  this  group  of  states  should  make  as  its  first  move  the 
occupation  of  West  Virginia  and  of  Missouri,  it  would  add  to  its  pre- 
ponderance much  as  the  Germans  have  added  to  theirs  by  the  occupa- 
tion of  Belgium  and  Poland. 

The  idea  is  abroad  that  Germany  may  be  conquered  by  the  Allies 
if  the  latter  will  buy  enough  copper  and  other  munitions.  The  reality 
is  that  buying  of  supplies  is  a  comparatively  insignificant  part  of  the 
problem.  To  take  an  industrial  comparison,  let  us  suppose  that  the 
plants  of  the  United  States  Steel  Corporation  were  supplied,  complete, 
to  Russia,  without  the  organization  as  it  exists  to  day.  What  use 
could  Russia  make  of  them  ? 

I  do  not  mean  to  imply  that  the  individual  Russian  is  necessarily 
inferior  as  a  workman,  or  as  a  man,  to  the  individual  American.  That 
is  one  of  the  difficulties  in  understanding  this  present  situation.  Each 
of  the  great  nations  and  races  of  mankind  is  able  to  furnish  human 
material  that  can  compete  on  even  terms  with  that  of  any  other 


120  ECONOMICS  OF  WAR 

nation.  But  I  think  you  will  recognize  quickly  that  it  would  take  the 
Russians  many  years  to  make  any  adequate  use  of  the  plants  of  the 
United  States  Steel  Corporation. 

It  is  hardly  worth  while  to  go  into  details.  The  operation  of  those 
plants,  including  mines,  steamships,  railroads,  rolling  mills,  and 
factories  of  all  kinds,  requires  the  development  of  a  deal  more  than 
that,  namely,  a  slowly  evolved  and  highly  organized  control.  The 
plans  and  the  execution  of  them  must  be  tested  by  competition  with 
rivals.  The  organization  must  know  the  fields  in  which  the  products, 
when  made,  can  be  sold  and  utilized. 

It  would  be  easy  to  dwell  on  this  subject  a  long  time,  but  I  think 
you  will  soon  conclude  that  the  plants  of  the  United  States  Steel 
Corporation  would  never  reach  anything  like  the  effectiveness  in 
Russia  which  they  have  in  this  country,  until  the  Russian  nation  is 
developed  industrially  to  such  an  extent  that  it  can  meet  such  an 
organization  on  even  terms.  In  other  words,  other  industries — all  of 
the  industries  in  the  country,  in  fact — would  have  to  be  developed  in  a 
substantially  equivalent  manner.  This  certainly  can  not  be  accom- 
plished overnight,  nor  during  the  probable  continuance  of  any  war. 
It  is  a  matter  that  requires  nothing  short  of  the  industrial  organization 
and  development  of  the  nation.  A  generation,  or  even  two 
generations,  is  a  short  time  for  such  an  accomplishment. 

It  is  a  fact  not  generally  recognized  that  today  there  are  only 
three  nations  in  which  mechanical  industry  is  widespread,  namely,  the 
United  States,  the  British  Empire,  and  Germany.  It  is  not  fair  of 
course  to  say  that  industry  has  not  been  developed  in  other  countries, 
but  these  nations  are  so  far  ahead  of  any  rivals  that  they  are  very 
distinctly  in  a  class  by  themselves.  These  three  nations  produce 
about  90  per  cent  of  the  coal  of  the  world  and  undoubtedly  operate 
90  per  cent  of  its  machinery. 

It  happens  that  one  of  these  nations  is  the  most  highly  developed 
military  nation  in  the  world.  The  other  two,  while  developed 
industrially  quite  as  highly  as  Germany  industrially,  happen  to  be 
about  the  least  military  nations  of  the  world. 

X.    The  Larger  Economic  Strategy1 

The  larger  strategy  of  war  calls  for  the  solution  of  complicated 
and  baffling  problems  in  industrial  organization  and  involves  the 
thought  and  efforts  of  all  the  people  of  the  warring  nation.  Single 

'An  editorial. 


NATURE  OF  MODERN  WAR  1 21 

military  campaigns  may  aim  at  the  taking  of  supplies,  the  capture  of 
men,  or  the  occupation  of  territory.  But  these  immediate  objects 
are  part  of  a  larger  purpose,  of  a  destruction  of  the  armed  resistance 
of  the  enemy,  and  in  terms  of  this  event  their  success  or  failure  is  to 
be  judged.  To  this  end  it  is  necessary  that  eventually,  as  campaign 
follows  campaign,  an  army  sufficient  in  numbers,  equipped  with  an 
adequate  amount  of  devices,  and  supplied  with  the  requisite  volume 
of  materials  be  hurled  upon  the  opposition.  Antecedent  to  the  strictly 
military  problem  this  larger  strategy  involves  the  two  problems  of 
securing  the  requisite  men  and  materials  and  of  distributing  and 
utilizing  them  in  complementary  branches  of  service. 

It  is  evident  that  the  first  of  these  problems  depends  upon  the 
nature  and  intensity  of  the  struggle.  If  the  enemy  is  vastly  inferior 
in  man  power  and  in  economic  resources,  or  if  serious  deficiencies  in 
industrial  organization  make  it  impossible  for  it  effectively  to  bring 
its  strength  into  play,  the  strategy  of  supply  involves  no  difficulties. 
If,  for  example,  the  United  States  were  seriously  bent  upon  the 
conquest  of  Mexico,  an  army  large  enough  for  the  purpose  and  an 
adequate  supply  of  materials  might  be  obtained  with  little  difficulty. 
An  army  might  easily  and  quickly  be  recruited  by  calling  for  vol- 
unteers who  could  leave  their  positions  or  their  leisure  with  little 
difficulty.  The  material  might  be  obtained  simply  by  taking  up  the 
slack  in  the  industrial  system,  which  is  not  running  at  full  speed. 
But  if  the  enemy  is  strong  in  men  and  resources,  well  organized,  and 
willing  to  pay  the  necessary  price  for  military  success,  the  problem  is 
greatly  changed.  It  is  suicide  to  meet  an  enemy  with  a  million  men 
with  an  army  of  only  half  a  million.  Gas  shells  by  the  tens  of  thou- 
sands are  not  a  match  for  gas  shells  by  the  hundreds  of  thousands,  and 
rifles  are  ineffective  against  machine  guns.  Furthermore,  if  the 
opponents  be  evenly  matched,  the  struggle  becomes  a  competitive  one. 
A  surplus  of  men  and  machines  gives  one  side  an  advantage  for 
attack,  and  every  effort  is  made  to  secure  it.  But  this  calls  for  similar 
exertion  by  the  other.  It  is  the  competitor  who  is  willing  to  plunge 
most  heavily  who  determines  the  plane  of  competition.  If  the 
enemy's  effective  forces  are  not  matched,  the  victory  is  lost.  They 
must  be  overmatched  if  effective  victory  is  to  be  won. 

In  view  of  this  really  cut-throat  competition,  the  securing  of  a 
surplus  of  men,  machines,  and  materials  becomes  alike  of  the  greatest 
importance  and  of  the  gravest  difficulty.  However  simply  it  may  be 
stated,  it  involves  great  precision  in  estimating  the  strength  of  the 


122  ECONOMICS  OF  WAR 

enemy  and  in  anticipating  the  course  of  events,  nice  calculations 
and  careful  judgments  about  the  use  in  a  complementary  way  of  many 
groups  of  men  and  a  bewildering  variety  of  industrial  equipment.  It 
involves  a  reconciliation  between  three  sets  of  interests.  First,  men 
and  means  must  be  left  at  their  appointed  tasks  to  turn  out  food, 
clothing,  and  other  necessities  sufficient  to  insure  health  and  pro- 
ductive efficiency  to  the  population.  Secondly,  a  force  must  be  sent 
to  the  front  sufficient  to  prove  effective  there.  And  thirdly,  men  and 
materials  must  be  kept  back  of  the  line  adequate  to  produce  the  large 
and  varied  supplies  which  the  army  requires.  Too  many  men  and 
materials  in  the  first  or  third  of  these  groups  is  at  the  expense  of 
the  second.  Too  few  rob  the  second  of  a  part  of  their  fighting 
efficiency.  In  short,  the  problem  is  to  make  the  fighting  force,  which 
is  the  cutting  edge  of  the  industrial  machine,  as  large  and  as  efficient 
as  is  necessary,  without  weakening  the  supply  service  enough  to 
decrease  its  efficiency.  It  is  evident* that  the  problem  requires  the 
utmost  delicacy  to  be  manifested  in  a  series  of  careful  judgments.  To 
cite  examples  of  its  importance,  examples  now  quite  familiar,  England 
suffered  during  the  earlier  years  of  the  war  from  not  having  men  and 
materials  enough  at  the  front,  and  one  of  the  causes  which  led  to  the 
disorganization  of  the  Russian  industrial  structure,  so  evident  after 
the  revolution,  was  the  withdrawal  of  too  many  men  from  the  economic 
system  for  use  in  the  armies. 

Under  most  favorable  conditions  the  solution  of  the  problem  is 
attended  with  difficulty.  In  democratic  nations  like  Great  Britain, 
France,  and  the  United  States  the  difficulties  are  particularly  baffling. 
One  problem  is  in  adjusting  to  the  unified  demands  of  war  an  industrial 
system  which  has  been  contrived  with  no  such  end  in  view.  Laborers 
are  specialized  to  particular  tasks,  capital  has  been  stereotyped  into 
buildings  and  equipment  which  know  not  war,  trade  has  cut  deep  and 
peaceful  grooves  for  itself,  and  personal  habits  have  become  unwarlike 
and  rigid.  Although  the  nation  may  be  willing,  it  is  hard  for  rational 
thought  to  displace  the  habits  and  conventions  of  generations,  and 
for  the  newer  rationalized  thought  to  create  a  belligerent  industrial 
system  in  its  own  likeness.  A  kindred  obstacle  lies  in  the  great 
difficulty  of  securing  the  surplus  for  war  use  in  a  society  as  intricate 
and  complicated  as  ours.  One  runs  the  risk  of  failing  to  secure  a 
surplus  large  enough  to  put  an  adequate  army  at  the  front  and  yet  of 
imposing  upon  certain  groups  of  society  burdens  heavier  than  they 
can  bear  and  still  retain  their  efficiency.  In  short,  there  may  be  much 


NATURE  OF  MODERN  WAR  123 

waste  which  might  be  converted  into  necessary  war  materials.  From 
this  it  is  evident  that  the  problem  of  securing  the  surplus  is  a  strategic 
one  which  ramifies  throughout  the  industrial  system  and  in  its  solution 
calls  for  the  co-operation  of  all  the  people  of  the  country. 

At  this  point  an  illustration  may  serve  to  point  the  nature  of  this 
problem  of  strategy.  It  is  now  a  commonplace  that  the  army  which 
has  the  offensive  is  at  an  advantage,  and  that  superior  numbers  of 
men  and  materials  give  the  chance  for  the  offensive.  Each  of  the 
warring  nations  has  been  trying  to  get  to  the  front  as  many  men  as 
possible.  To  do  this  all  of  them  have  utilized  the  services  of  children, 
the  aged,  the  infirm,  and  the  leisured  in  industry.  Above  all,  they 
have  attempted  to  draw  women  into  industrial  occupations  to  release 
men  for  the  front.  In  this  connection  it  may  be  remarked  that  at 
present  American  women  are  just  beginning  to  awaken  to  their  part 
in  the  strategy  of  the  war  surplus.  For  months  they  used  a  large 
supply  of  labor  in  turning  out  a  very  small  product  by  knitting  for 
the  Red  Cross.  Of  course  this  little  was  better  than  nothing.  But 
it  cannot  be  remarked  too  often  that  a  nation  which  uses  the  machine 
system  exclusively  possesses  an  enormous  advantage  over  one  which 
employs  in  considerable  measure  the  technique  of  handicraft. 

But  the  problem  of  securing  an  economic  surplus  large  enough  to 
be  effective  leads  to  a  second  strategical  problem  of  an  economic 
nature.  The  men  and  materials  freed  from  the  industrial  tasks  of 
peace  times  are  a  fluid  mass.  The  men  have  to  be  separated  into 
groups,  such  as  infantry,  aeroplane,  munitions,  etc.,  and  these  have 
to  be  specialized  for  tasks  which  in  the  great  art  of  war  are  comple- 
mentary. And  each  of  these  larger  groups  has  to  be  divided  into  a 
myriad  of  subgroups.  Likewise  the  materials  have  to  be  specialized 
to  particular  services.  This  separation  has  to  be  carefully  made  and 
the  correlation  carefully  effected  in  view  of  a  larger  program  of  military 
operations.  It  is  manifest  that  this  separation  and  correlation  is  a 
problem  in  the  organization  of  men  and  materials. 

Complementary  to  this  and  conditioning  it  is  the  third  problem 
of  the  larger  strategy,  that  of  hurling  it  most  efficiently  upon  the  enemy 
so  as  to  secure  the  disorganization  of  armed  resistance.  This  resolves 
itself  into  the  kindred  problems  of  concentration.  •  The  object  is  to 
concentrate  one's  effective  strength  and  to  cause  the  enemy  to  dissi- 
pate his,  or,  more  properly,  to  fall  upon  an  enemy  who  has  been  forced 
to  dissipate  his  forces  with  a  military  establishment  organized  against 
his  weakest  point.  Such  a  problem  involves  conserving  the  economic 


124  ECONOMICS  OF  WAR 

resources  of  men  and  materials  and  causing  the  enemy  to  waste  as 
many  men  and  as-  much  of  his  limited  materials  as  possible.  To  cite 
an  example,  the  object,  or  at  least  one  of  the  objects,  of  the  Gallipoli 
campaign,  was  to  cause  a  "diversion"  of  the  resources  of  the  Central 
Empires  from  the  Eastern  and  Western  fronts.  Italy's  entrance  into 
the  war  was  premised  upon  no  expectation  of  being  able  immediately 
to  break  the  strength  of  Austria  by  crossing  the  Alps,  but  to  weaken 
the  German  lines  on  the  Western  front.  And,  in  a  way,  the  dissipation 
of  the  resources  of  the  Central  Powers  and  their  inability  to  strike  a 
conclusive  blow  was  the  chief  result  of  Russia's  participation  in  the 
war.  How  the  costs  of  these  ventures  compare  with  the  results  is  a 
question  which  does  not  now  concern  us.  The  point  is  that  the  object 
is  to  cause  the  enemy  to  use  as  many  men  and  materials  as  possible 
by  the  expenditure  of  a  minimum  of  energy  on  the  part  of  the 
aggressor. 

Perhaps  the  clearest  example  of  an  attempt  to  force  a  great  waste 
of  men  and  resources  upon  the  enemy  with  little  expenditure  is  the  use 
of  the  submarine  by  Germany.  The  casual  reader,  who  has  no 
interest  in  the  larger  problems  of  strategy,  has  been  taught  by  the 
newspapers  that  the  success  of  the  submarine  is  to  be  measured  by  its 
ability  to  bring  the  Allies  to  their  knees  by  disorganizing  their  com- 
munications and  forcing  starvation  upon  the  people  of  England. 
Those  responsible  for  submarine  activity  doubtless  had  some  thought 
of  such  a  happy  outcome  and  would  not  be  seriously  disappointed  in 
such  an  event.  But  its  success  or  failure  is  not  to  be  appraised  by  so 
obvious  a  method  as  its  ability  or  disability  to  bring  England  to 
terms.  Its  destruction  of  ships  has  added  to  the  cost  of  carriage  of 
cargoes  the  cost  of  the  ships  destroyed  as  well  as  the  cost  of  the 
cargoes  which  have  gone  to  the  bottom.  One  can  see  also  that  if  the 
average  ship  makes  twenty,  or  even  forty  or  fifty,  trips  before  it 
goes  to  the  bottom,  the  cost  of  carriage,  which  is  in  the  last  analysis 
nothing  else  but  labor  and  economic  resources,  has  been  multiplied 
many  fold  because  of  submarine  dangers.  But  to  this  must  be  added 
the  labor  of  men  and  materials  embodied  in  convoys,  destroyers, 
mine-sweepers,  aeroplane  observation,  and  the  development  and 
manufacture  of  the  thousand  and  one  devices  which  are  used  in  sub- 
marine chasing.  In  addition,  the  scarcity  of  ships  interposes  an 
obstacle  between  the  manufacture  of  munitions  in  America  and  their 
use  three  thousand  miles  away.  The  small  neck  of  the  bottle  inter- 
feres in  ways  too  subtle  and  too  numerous  to  be  mentioned  here  with 


NATURE  OF  MODERN  WAR  125 

the  production  of  supplies  in  the  proportions  to  each  other  which  those 
responsible  for  the  military  program  deems  necessary.  What  these 
costs  in  the  aggregate  are,  and  what  the  items  would  be  as  an  over- 
head charge  for  the  protection  of  shipping  in  any  larger  scheme  of 
national  accountancy,  is  not  definitely  known  and  it  would  be  idle  to 
try  to  compute  it  from  the  meager  evidence  at  hand.  But  it  is  appar- 
ent to  any  candid  mind  which  wishes  to  face  the  facts,  that  the  men 
and  materials  required  to  meet  the  submarine  menace  are  only  a 
fraction  of  those  required  to  maintain  it.  In  short,  by  the  use  of  a 
certain  amount  of  limited  resources  Germany  is  able  to  force  upon 
her  enemies  the  expenditure  of  many  times  that  amount  of  resources. 
Together,  these  problems — the  organization  of  men  and  materials 
between  necessary  civilian  production,  war  supplies,  and  the  opera- 
tions of  the  front,  the  apportionment  of  men  and  materials  between 
various  military  and  semi-military  demands,  and  the  problem  of 
concentration  of  resources  against  an  enemy  dissipating  his,  constitute 
the  larger  problem  of  strategy.  Aspects  of  this  problem  are  neces- 
sarily antecedent  to  the  military  problem ;  others  are  complementary 
to  it;  but  all  are  intimately  associated  with  it,  and  the  problem  of 
purely  military  strategy  can  be  solved  only  in  terms  of,  and  in  the 
light  of,  the  solution  of  the  larger  problem  of  the  economic  strategy 
of  war.1 

'An  article  by  Lieutenant-Colonel  Charles  fa  Court  Repington  in  the 
Atlantic  Monthly  for  August,  1918,  makes  many  pertinent  suggestions  as  to  the 
relation  of  economics  to  military  and  political  strategy.  It  is  an  answer,  largely 
in  economic  terms,  to  the  contentions  of  M.  Cheradame  and  others  of  the 
"Eastern  school"  of  strategists. 


IV 

RESOURCES  OF  THE  BELLIGERENTS 

Introduction 

A  consideration  of  the  question  of  the  larger  economic  strategy 
of  war,  which  it  was  the  purpose  of  the  last  chapter  to  raise,  may 
properly  begin  with  an  enumeration  and  comparison  of  the  resources 
of  the  various  belligerent  countries.  These  are  the  physical  funds  out 
of  which  armies  must  be  supplied  with  the  vast  array  of  equipment  and 
munitions  which  constitute  the  sinews  of  modern  war.  The  aggregate 
of  these,  too,  is  the  maximum  which  limits  the  size  of  armament  and 
the  effective  participation  of  a  nation  in  war. 

The  first  economic  asset  or  liability  mentioned  below  is  that  of 
geographical  position.  Perhaps  in  its  strictest  sense  geography  is  to 
be  excluded  from  the  list  of  economic  factors  in  war.  But  indirectly 
it  is  of  great  economic  importance  because  of  its  influence  upon  the 
effective  utilization  of  material  resources.  The  matter  of  favorable 
geographical  position  permits  the  effective  manipulation  of  men  and 
supplies  with  little  waste.  Proximity  to  the  battle  front  means  that 
little  of  the  limited  resources  of  a  nation  are  used  in  getting  forces  and 
materials  there,  and  most  of  them  can  be  hurled  directly  upon  the 
enemy.  On  the  contrary,  distance  means  alike  a  drain  and  the  waste 
incident  to  a  more  complex  organization  back  of  the  lines.  It  means 
that  a  large  part  of  the  nation's  productive  energy  is  used  up  in 
getting  to  the  scene  of  action  and  that  there  is  less  to  expend  when 
troops  and  supplies  are  there.  In  these  and  like  ways  geography  is  of 
importance  in  its  influence  upon  the  organization  of  men  and  materials. 

The  next  economic  factor  (asset  or  liability,  according  as  it  is 
plentiful  or  scarce)  is  that  of  "industrial  resources."  More  broadly 
these  include  man  power,  technique,  organization,  etc.  More 
narrowly  the  term  is  limited  to  the  raw  materials  out  of  which  are 
made  the  goods  which  the  modern  art  of  war  requires.  In  particular 
it  includes  coal,  iron,  steel,  petroleum,  cotton,  lumber,  and  other  staple 
commodities.  The  technique  of  modern  war,  with  its  dependence 
upon  the  machine  process,  requires  in  the  largest  quantities  materials 

126 


RESOURCES  OF  THE  BELLIGERENTS  127 

of  which  these  are  the  raw  elements.  An  enumeration  and  com- 
parison of  these  is  therefore  of  value  in  determining  in  relative  terms 
the  economic  strength  of  the  several  belligerents. 

But  this  reckoning  is  not  sufficient.  It  indicates  a  tremendous 
advantage  of  the  allied  nations  over  the  central  empires,  an  advantage 
which  the  course  of  the  war  has  not  made  explicit.  It  remains  to  add 
that  these  resources  indicate  only  the  limit  of  possible  strength,  not  the 
extent  of  effective  participation.  To  be  used  they  have  to  be  con- 
verted into  the  actual  materials  of  war.  This  process  is  dependent 
upon  technique,  industrial  organization,  a  singleness  of  aim  in  govern- 
mental control,  national  ideals,  and  the  habits  and  customs  of  the 
people.  Largely  because  of  its  late  adoption  of  the  machine  technique 
by  a  government  which  subordinated  the  new  industrial  system  to 
military  ends,  Germany  was  able  to  utilize  more  effectively  its 
resources  than  were  the  Allies.  In  addition  a  scheme  of  individualism, 
written  into  the  institutions  and  habits  of  allied  people,  has  seriously 
interfered  with  the  effective  utilization  for  war  of  the  productive 
resources. 

XI.     The  Value  of  Geographic  Position 

i.    ASSETS  AND  LIABILITIES  OF  THE  GERMANIC1 
POSITION 

I.   RELATIVE  AREAS  OF  THE  BELLIGERENTS 

In  attempting  to  appraise  the  significance  of  geography  in  relation 
to  the  military  power  of  the  belligerents,  it  will  be  of  interest  to  note 
first  the  relative  areas  of  the  contending  powers.  At  the  outbreak 
of  the  war  the  alignment  of  nations  was  Germany,  Austria,  and  Turkey 
against  Great  Britain,  France,  Belgium,  and  Russia.  Exclusive  of 
Asiatic  Turkey,  Asiatic  Russia,  and  colonies,  the  area  of  the  Central 
Powers  was  461,203  square  miles,  and  of  the  Entente  2,337,370  square 
miles.  In  the  year  1917  and  the  first  half  of  1918  (before  America's 
power  could  manifest  itself)  the  geographic  areas  involved  were  as 
follows:  the  Central  Powers,  including  at  this  time  Bulgaria,  Servia, 
Roumania,  Belgium,  and  Poland,  634,249  square  miles  (this  is  exclu- 
sive of  the  Ukraine  and  the  North  Baltic  Russian  provinces).  The 
area  of  the  allied  nations  at  this  time  (that  is,  the  British  Isles,  France, 
Italy,  and  Portugal)  was  474,827  square  miles.  In  this  alignment  we 
are  considering  Russia  as  out  of  it,  Japan  as  (practically)  neutral,  and 
the  United  States  as  not  yet  effectively  in.  We  are  also  excluding  the 

1  An  editorial. 


128  ECONOMICS  OF  WAR 

British  and  French  colonial  possessions  because  their  great  distance 
and  sparse  population  render  a  direct  comparison  of  little  value.  As 
an  offset  at  this  time  against  these  colonial  areas  may  be  set  down 
Asiatic  Turkey,  699,342  square  miles,  a  considerable  area  of  France 
in  the  possession  of  Germany,  and  a  relatively  free  hand  for  Germany 
in  a  large  portion  of  Russia.  It  need  only  be  added  that  with  the 
United  States  involved  the  allied  area  is  again  in  the  ascendancy. 

II.      DISADVANTAGES   OF   THE   GERMANIC   POSITION 

The  chief  disadvantage  of  the  Teutonic  position,  as  has  often  been 
pointed  out,  lies  in  the  necessity,  imposed  by  its  central  Continental 
location,  of  fighting  on  both  fronts — that  is  to  say,  this  was  a  dis- 
advantage so  long  as  Russia  was  a  serious  contender.  In  the  early 
days  of  the  war  it  was  necessary  for  the  Germans  and  Austrians  to 
plan  and  carry  out  two  separate  campaigns,  and  to  co-ordinate  them 
as  well  as  might  be  under  the  conditions  imposed  by  geographic 
factors.  Should  they  strike  France  first  with  the  hope  of  reaching 
Paris  before  the  vast  hordes  of  Russia  could  be  effectively  mobilized  ? 
Should  they  strike  both  east  and  west  simultaneously?  Should  they 
endeavor  first  to  crush  Russia's  military  power  and  then  turn  their 
entire  strength  upon  France  and  take  Paris  at  their  leisure?  The 
world  of  course  knows  that  the  first  of  these  two  alternatives  was 
chosen.  Everyone  knows,  also,  that  after  failing  to  put  the  French 
out  of  the  conflict,  the  second  alternative  was  resorted  to.  And 
everyone  knows  that  they  eventually  succeeded  in  breaking  Russia. 
The  delays  involved,  however,  must  be  set  down  as  due  not  so  much 
to  faulty  strategy  as  to  the  inherent  difficulties  in  waging  war  simul- 
taneously on  the  two  fronts,  which  became  a  necessity  because  of  the 
unexpectedly  strong  resistance  on  the  west  and  the  unexpectedly 
rapid  mobilization  of  Russia's  forces  in  the  east. 

The  second  disadvantage  of  the  position  of  the  Central  Powers 
lies  in  their  being  partially  subject  to  blockade.  It  should  be  borne 
in  mind  in  considering  this  disadvantage  that  in  the  early  months  of 
the  war  all  the  Roumanian  frontier  was  open,  as  well  as  the  Adriatic 
Sea  from  the  Italian  border  as  far  as  Cataro.  Likewise  the  Swiss  and 
Italian  frontiers  were  open  for  trading  purposes.  In  addition  to  all 
this,  by  virtue  of  Germany's  control  of  the  Baltic  and  the  neutrality 
of  the  Scandinavian  countries  and  Holland,  the  gates  were  at  least 
partly  open  to  trade  with  the  whole  Western  world.  Great  Britain's 
control  of  the  sea  was,  nevertheless,  a  powerful  factor,  and  Germany 


RESOURCES  OF  THE  BELLIGERENTS  I2Q 

was  undoubtedly  seriously  embarrassed  in  obtaining  all  the  materials 
required.  It  is  equally  true,  however,  that  in  the  early  months  and 
even  years  of  the  war  the  Allies  were  seriously  embarrassed  in  their 
relations  with  neutral  countries  in  endeavoring  to  prevent  cargoes 
sent  to  such  neutral  countries  from  being  transshipped  to  Germany. 
While  the  British  fleet  could  search  vessels  the  cargoes  of  which  might 
reach  the  Central  Powers  through  Gibraltar,  the  Straits  of  Dover,  or 
the  North  Sea,  it  could  not  directly  prevent  supplies  reaching  Germany 
through  Switzerland,  Holland,  Denmark,  Roumania,  Norway,  and 
Sweden.  The  Allies  did  not  dare  seriously  to  offend  European 
neutrals  for  fear  that  they  might  be  drawn  into  the  conflict  on  the  side 
of  Germany,  and  they  were  particularly  anxious  to  retain  the  good- 
will of  the  United  States,  from  which  they  received  large  supplies 
and  on  which  they  counted  eventually  for  direct  military  assistance. 
It  should  be  borne  in  mind  in  connection  with  the  trade  of  the  Euro- 
pean neutrals  that  although  supplies  obviously  designed  for  German 
use  might  be  seized  as  contraband,  it  was  impossible  to  prevent 
Germany  from  buying  the  same  material  after  it  was  "made  up"  by 
the  neutrals.1  During  the  first  two  years  of  the  war,  the  imports  from 
all  the  neutral  countries  bordering  on  Germany,  particularly  those 
from  the  United  States,  increased  tremendously,  in  many  instances 
representing  increases  of  400  or  500  per  cent.  That  these  goods  were 
transshipped  to  Germany,  either  in  raw  or  finished  form,  goes  without 
saying. 

It  is  apparent  from  the  foregoing  that  the  Allies'  blockade  of 
Germany  in  the  early  stages  of  the  war  was  relatively  ineffective. 
Indeed  it  is  a  question  whether  the  energy  expended  by  the  Allies 
during  the  first  months  of  the  war  in  endeavoring  to  prevent  importa- 
tions to  Germany  was  worth  the  effort — save  as  a  necessary  prelimi- 
nary to  more  effective  control  in  the  later  stages  of  the  war.  It  has 
been  suggested  that  the  partial  blockade  that  was  effected,  particu- 
larly in  relation  to  imports  of  materials  used  in  the  manufacture  of 
luxuries,  proved  a  boomerang  to  the  Allies.  Mr.  A.  C.  Miller,  of  the 
Federal  Reserve  Board,  states: 

It  is  coming  to  be  recognized  by  those  who  appreciate  that  this  war 
is  an  economic  endurance  contest  that  England's  blockade  of  Germany  has 
been  one  of  Germany's  greatest  aids  in  her  financing  of  the  war.  It  has 
forced  the  most  rigid  sort  of  economy  and  through  bringing  the  whole 

1  It  was  not  until  the  spring  of  19*8  that  the  United  States  was  able  to  reach 
a  satisfactory  commercial  agreement  with  Norway. 


130  ECONOMICS  OF  WAR 

people  appreciably  nearer  the  point  of  starvation  has  led  them  to  accept 
the  most  drastic  control  of  living  that  the  world  has  ever  seen.  I  have  been 
told  upon  trustworthy  authority  that  when  the  policy  of  submarine  warfare 
against  England  was  under  discussion  in  Berlin,  one  of  Germany's  most 
eminent  strategists  argued  vigorously  against  it  on  the  ground,  not  of  its 
violation  of  the  established  rules  of  international  practice,  but  on  the  ground 
that  it  would  help  England  more  than  it  would  hurt  her.  "Keep  the 
submarine  away  from  England's  shores  and  England  will  eat  herself  into 
bankruptcy  quicker  than  the  submarine  can  bring  her  to  starvation.  "1 

While  other  measures  of  enforcing  the  economies  required  by  war 
have  been  discovered  which  have  rendered  this  prophecy  false,  it  is 
undoubtedly  true  that  the  curtailment  of  raw  materials  required 
by  Germany  in  the  manufacture  of  luxuries  was  a  great  aid  to  the 
rapid  readjustments  of  industry  in  Germany  to  a  war  basis.  ^ 

In  the  later  stages  of  the  war  the  blockade  of  Germany  has  been 
more  effective,  but  with  the  collapse  of  Russia  and  the  resulting 
enormous  gains  of  Germany  in  the  east  and  the  southeast  this 
geographic  disadvantage  is  again  somewhat  minimized. 

The  third  disadvantage  that  has  been  pointed  out  in  connection 
with  the  geographic  position  of  the  Central  Powers  relates  more 
directly  to  the  military  organization.  The  German  armies  before 
the  collapse  of  Russia  held  four  corners  of  a  rectangular  sort  of  area: 
Belgium  in  the  northwest,  Alsace-Lorraine  in  the  southwest,  East 
Prussia  in  the  northeast,  and  Silesia  in  the  southeast.  A  fifth  might 
be  added — the  Italian  front.  The  breakdown  of  Russia  has  of  course 
eliminated  one  of  these  corners.  If  Germany  is  forced  on  the  defen- 
sive she  must  face  the  following  dilemma:  Shall  one  or  more  of  the 
regions  be  sacrificed,  or  shall  there  be  a  dispersion  of  forces  in  an 
attempt  to  hold  all  corners  at  once  with  a  possible  resulting  loss  on 
every  side  ?  The  areas  separating  these  fronts  are  considerable,  and 
in  spite  of  Germany's  strategic  railways  it  remains  a  serious  handicap 
when  once  her  enemies  are  gaining  the  upper  hand.  The  recent  allied 
victories  in  quick  succession  in  Italy,  Albania,  and  in  the  Soissons- 
Chateau-Thierry-Rheims  salient  offer  concrete  evidence  of  this 
geographic  handicap. 

III.      ADVANTAGES   OF   THE   GERMANIC  POSITION 

The  Central  Powers  have  possessed,  however,  one  tremendous 
geographic  advantage.  This  is  contiguity  of  territory  and  closely 

1  In  an  address  before  the  Western  Economic  Society  and  the  City  Club  of 
Chicago,  June  22,  1917. 


RESOURCES  OF  THE  BELLIGERENTS  131 

connected  means  of  communication.  The  distance  from  Berlin  to 
Vienna  is  a  brief  night's  journey  by  express  train,  so  that  the  war 
strategists  are  in  almost  physical  touch  with  one  another.  Moreover, 
the  lines  of  communication  throughout  the  Central  Empires,  both 
north  and  south  and  east  and  west,  are  so  well  developed  that  it  is 
possible  to  transfer  troops  from  one  front  to  another  with  a  minimum 
loss  of  time.  It  is  not  to  be  understood  from  this  statement  that  the 
handicap  suggested  in  the  previous  paragraph  is  after  all  an  advantage. 
The  foregoing  discussion  relates  to  the  situation  in  which  Germany 
would  find  herself  when  strongly  pressed  by  the  enemy  on  every  sector 
at  once.  So  long  as  the  German  armies  are  in  the  ascendancy,  at 
least  on  some  of  the  important  fronts,  this  compact  geographical  area 
with  through  lines  for  rapid  communication  is  a  real  advantage.  For 
instance,  it  was  possible  for  the  Germans  to  transfer  troops  from  Russia 
to  the  Italian  front  for  the  Italian  drive  in  the  autumn  of  1917  within 
a  very  few  days  by  virtue  of  almost  direct  trunk  line  connections. 

2.    ASSETS  AND  LIABILITIES  OF  THE  ALLIED  POSITION1 

I.      ADVANTAGES 

The  outstanding  advantage  in  the  geographic  position  of  the 
Allies  is  the  location  of  France  and  England  on  the  Atlantic  and  Italy 
on  the  Mediterranean.  This  position,  coupled  with  the  great  mer- 
chant fleets  and  navies  of  the  Allies,  eventually  made  possible  a 
serious  embarrassment  of  Germany  through  a  curtailment  of  importa- 
tions of  basic  raw  materials'.  Although  this  blockade  has  not  suc- 
ceeded in  bringing  Germany  to  her  knees,  it  must  still  be  borne  in 
mind  that  it  has  necessitated  heroic  measures  on  the  part  of  the  Central 
Powers  to  make  themselves  economically  self-sufficient — measures 
which  have  resulted,  in  many  instances,  in  devoting  their  energies  to 
productive  operations  for  which  they  are  very  poorly  adapted.  The 
Allies,  on  the  other  hand,  having  control  of  the  seas,  have  been  able  to 
draw  the  materials  needed  from  the  regions  of  the  earth  which  can 
produce  them  most  advantageously,  paying  for  them  meanwhile  with 
commodities  produced  by  themselves  under  favorable  productive 
conditions.  Better  still,  they  have  not  always  had  to  pay  for  them, 
but  have  borrowed  tremendous  quantities  of  materials  and  supplies 
to  be  paid  for  after  the  war  is  over.  Germany,  on  the  other  hand,  has 
since  the  first  year  or  so  of  the  war  been- required  largely  to  produce 

•An  editorial. 


132  ECONOMICS  OF  WAR 

her  own  supplies  within  her  own  borders.  Credit  with  outside  nations, 
owing  partly  to  geographical  factors,  has  been  more  and  more  a  neg- 
ligible part  of  the  German  war  program.  On  the  other  hand,  the 
allied  nations  from  the  very  beginning  were  assured  of  large  imports  of 
supplies.  It  was  unnecessary  in  consequence  to  effect  so  complete 
a  diversion  of  energy  with  resulting  loss  in  productive  efficiency  as 
was  the  case  in  the  Central  Powers.  This  was  the  situation,  however, 
only  so  long  as  there  was  an  important  neutral  world  remaining. 
With  the  United  States  an  active  participant  in  the  conflict,  the  Allies 
as  a  whole  have  found  it  necessary  to  devote  their  energies,  as  largely 
as  possible  to  the  production  of  war  supplies.  It  still  remains 
possible,  however,  by  virtue  of  England's  control  of  the  seas,  to 
maintain  an  extensive  interallied  division  of  labor  with  resulting 
productive  economies. 

Another  geographic  advantage  possessed  by  England  arises  from 
the  fact  that  her  island  position,  protected  by  a  great  navy,  renders 
her  great  resources  of  iron  and  coal  immune  from  seizure  by  the  enemy. 
So  long  as  England  is  free  from  invasion  and  so  long  as  man-power  and 
woman-power  remain  for  the  working  of  her  great  manufactures  of  iron 
and  steel,  England  cannot  be  forced  out  of  the  war  for  want  of  the 
munitions  that  are  indispensable  for  modern  warfare.  As  we  shall 
later  see,  France  is  in  an  entirely  different  position  in  this  respect. 

II.      DISADVANTAGES 

In  the  first  stage  of  the  war  the  most  outstanding  disadvantage 
of  the  allied  position  was  the  geographic  isolation  of  Russia.  The 
Central  Powers  as  a  united  organization  had  to  meet  France  on  the 
one  front  and  Russia  on  the  other — disunited  and  uncorrelated  allied 
armies.  Physical  unification  of  armies  was  of  course  impossible,  and 
the  communication  of  intelligence  between  the  Russian  and  French 
commands  was  slow  and  uncertain.  One  might  almost  say  that  it 
was  non-existent  in  comparison  with  the  personal  and  continuous 
contact  possessed  by  the  German  and  Austrian  general  staffs.  As  a 
result  of  the  geographic  position  of  Russia  it  was  impossible  for  either 
side  quickly  to  rearrange  its  plan  of  campaign  as  a  result  of  changes 
in  their  respective  positions.  Another  geographic  handicap  of  the 
Allies,  as  relating  to  Russia,  is  that  the  only  Russian  outlets  to  the  sea 
were  via:  (i)  the  Arctic  port  of  Archangel,  which  is  open  little  more 
than  half  the  year  and  separated  from  the  scene  of  military  operations 
by  hundreds  of  miles  of  waste  and  deserted  country,  with  only  one 


RESOURCES  OF  THE  BELLIGERENTS  133 

narrow-gauge  line  of  railroad  with  inadequate  rolling  stock  to  bridge 
this  territorial  gap;  and  (2)  Vladivostok  on  the  Pacific,  connected 
with  the  scene  of  operations  in  the  west  by  a  single  line  of  railway  six 
thousand  miles  long. 

France  possessed  two  marked  geographic  handicaps.  The  first  is 
that  of  an  open  frontier  toward  Germany.  There  are  no  geographic 
barriers  to  prevent  an  open  attack  from  the  east,  and  in  consequence 
France  had  been  compelled  to  fortify  the  entire  frontier  facing 
Germany  with  a  line  of  forts  extending  from  Verdun  to  Belfort.  For 
200  miles  to  the  north  of  this,  however,  that  is,  from  Verdun  to  the 
North  Sea,  there  was  virtually  undefended  territory — undefended  by 
either  geographic  barrier  or  military  forts,  except  for  the  Belgian 
fortresses. 

The  second  great  geographic  handicap  of  France  lies  in  the  fact 
that  her  deposits  of  coal  and  iron  are  near  the  German  frontier. 
Germany's  prompt  advance  into  French  territory  thus  struck  France 
a  vital  blow,  for  without  resources  of  coal  and  iron  no  nation  can  wage 
effective  modern  warfare.  So  long  as  France  could  rely  upon  accu- 
mulated stores,  the  German  occupation  of  the  French  industrial  region 
was  of  small  account.  But  as  soon  as  the  war  entered  upon  its  second 
stage,  where  the  munitions  for  the  armies  had  to  be  supplied  from  day 
to  day  through  new  production,  this  became  the  most  serious  factor 
in  the  French  situation.  It  necessitated  the  importation,  at  enormous 
cost,  of  great  quantities  of  munitions  and  it  required  also,  the  develop- 
ment at  great  expense  of  new  industrial  regions  in  France,  noticeably 
in  the  southeast.1 

England's  first  handicap  lies  in  her  island  position.  From  one 
point  of  view,  as  we  have  seen,  this  is  an  advantage,  for  it  necessitated 
the  development  of  a  great  navy  and  merchant  marine  with  the  control 
of  the  trade  routes  of  the  world.  But  from  another  point  of  view  this 
is  a  serious  disadvantage.  Her  long-established  insular  security  had 
resulted  in  a  policy  that  made  it  possible  for  her  to  supply  an  expe- 
ditionary army  at  the  beginning  of  the  war  equivalent  only  to  about 
one-thirtieth  of  the  allied  forces.  In  addition,  England's  control  of 
the  trade  routes  of  the  world,  coupled  with  her  great  navy,  required 
the  utilization  of  a  relatively  large  portion  of  her  man-power.  It  is 
a  question  inde.ed  whether  the  diversion  of  man-power  from  direct 
participation  in  the  war  occasioned  by  England's  insular  position 

1  Cf.  selection  XVIII,  i. 


134  ECONOMICS  OF  WAR 

does  not  substantially  offset  the  advantages  which  England  is 
regarded  as  possessing  as  a  result  of  her  control  of  shipping.1 

Another  geographic  handicap  of  England  consists  in  her  scattered 
interests.  England  has  had  to  maintain  a  home  guard,  forces  hi 
France,  Saloniki,  Egypt,  and  Mesopotamia.  To  occupy  these 
outlying  regions  has  doubtless  cost  England  more  in  dissipation  of 
forces  than  she  has  been  able  to  gain  from  the  assistance  rendered  by 
her  colonies.  It  is  significant  to  note  in  this  connection  that  England's 
maximum  force  in  France  has  been  estimated  at  not  more  than  two 
million  men. 

The  outstanding  geographic  disadvantage  of  the  United  States  is 
of  course  her  cis-Atlantic  location.  This  is  a  disadvantage  from  two 
points  of  view.  First,  the  rank  and  file  of  the  people  of  this  country 
have  never  been  able  to  grasp  the  real  nature  of  the  struggle  from  the 
mere  fact  that  it  is  three  thousand  miles  away.  This  statement 
applies  not  merely  to  the  period  of  our  neutrality  but  it  has  been  true 
until  at  least  very  recent  weeks.  Nearness  to  the  awful  carnage 
appears  to  be  indispensable  to  a  genuine  appreciation  of  its  grim 
requirements. 

Second,  the  geographic  position  of  the  United  States  renders  our 
entire  task  of  industrial  and  military  mobilization  dependent  upon 
shipping.  The  great  army  which  we  are  sending  and  the  vast  stores 
of  supplies  and  munitions  must  all  pass  through  a  narrow-necked 
bottle,  as  it  were,  before  they  can  be  hurled  at  the  enemy.  When 
this  is  contrasted  with  the  strategic  railway  net  possessed  by  Germany, 
leading  to  frontiers  which  are  at  best  distant  but  a  short  day's  journey, 
our  handicap  is  seen  to  be  almost  incalculable. 

• 

1  See  in  this  connection  selection  X,  p.  123. 


XII.    The  Industrial  Resources  of  the  Belligerents 
i.    LOCATION  OF  EUROPEAN  ORE  AND  COAL  DEPOSITS 


RESOURCES  AND  PRODUCTION  OF  BASIC  RAW 
MATERIALS 

COAL  PRODUCTION  IN  1913  IN  TONS  OF  2,000  POUNDS 
The  figures  are  from  Mineral  Industry  (1915),  p.  118 


£         J9 


COAL  RESOURCES  IN  1913  IN  METRIC  TONS 

The  figures  are  from  "Coal  Resources  of  the  World,"  International 
Geological  Congress,  XII  (1913),  xx-xxvii 


•a 


RESOURCES  OF  THE  BELLIGERENTS 


137 


PIG-IRON  PRODUCTION  IN  1913  IN  TONS  OF  2,240  POUNDS 
The  figures  are  from  Mineral  Industry  (1916),  p.  414 


IRON  PRODUCTION  IN  1911  IN  METRIC  TONS 
The  figures  are  from  Whitaker's  Almanac  (1915) 


0 


3      £• 


3 


STEEL  PRODUCTION  IN  1913  IN  METRIC  TONS 
The  figures  are  from  Mineral  Industry  (1916),  p.  4H 


KS 


o 


ca 


IRON  RESOURCES  IN  1913  IN  METRIC  TONS 

The  figures  are  from  "Iron  Ore  Resources  of  the  World,"  International 

Geological  Congress,  XI  (1910),  xri-lxxix.    The  figures  are  those 

of  iron  contents  in  the  ore 


RESOURCES  OF  THE  BELLIGERENTS 


139 


COPPER  PRODUCTION  IN,  1913  IN  METRIC  TONS 
The  figures  are  from  Mineral  Industry  (1915),  p.  133 


PETROLEUM  PRODUCTION  IN  1913  IN  42-GALLON  BARRELS 
The  figures  are  from  Mineral  Industry  (1915),  p.  54° 


& 


TIMBER  LANDS  IN  1908  IN  ACRES 
The  figures  are  from  the  Harmsworth  Atlas,  p.  20 


TIMBER  PRODUCTION  IN  1908  IN  FEET,  B.M. 
The  figures  are  from  the  Harmsworth  Atlas,  p.  20 


RESOURCES  OF  THE  BELLIGERENTS 


141 


COTTON  PRODUCTION  IN  1915  IN  BALES  OF  500  POUNDS 

The  figures  are  from  the  American  Whitaker  (1915),  p.  180 

B 

./      ;!>  :;-,,.  ;;;  ;  ;  '  •;:,;;  .„•_;/;• 

1 

8                                                                         Si 

1 

«                      o                                                                       8 

c 

p 

1           I          I           1  •  '"•'    1 

"S.                   —  "                    —  "                       .c 

S                                    03                                      03 

w                                                      — 

^                          CJ 

3.    RAILWAY  MILEAGE 


II 

o  1 


RAILROADS  IN  1913  IN  MILES 
The  figures  are  from  the  World  Almanac  (1914),  p.  212 


142 


ECONOMICS  OF  WAR 


XIII.     Some  Economic  Assets  of  Germany 

• 

i.     GERMANY'S  RESOURCES  IN  COAL  AND  IRON1 

The  industrial  development  of  our  time  rests  upon  those  two 
mighty  pillars,  coal  and  iron.  Germany  is  one  of  the  lands  which 
nature  has  richly  endowed  with  these  two  primary  materials  of 
industry.  Germany  also  possesses  considerable  supplies  of  other 
important  minerals,  especially  salts,  and  zinc,  lead,  and  copper  ores. 
In  recent  generations  we  have  learned  how  to  recover  these  minerals 
and  to  utilise  them  more  and  more  perfectly.  During  the  past  twenty- 
five  years  the  value  of  the  direct  products  of  German  mining  (coal, 
ores,  salts)  has  increased  from  about  700,000,000  marks  to  con- 
siderably more  than  2,000,000,000  marks.  Coal  mining  alone  showed 
the  following  development: 


COAL 

LIGNITE 

TOTAL  COAL  PRODUCTION 

Average 
Number 
of  Miners 

Production 

Average 
Number 
of 
Miners 

Production 

Average 
Number 
of  Miners 

Production 

Amount, 
Million 
Tons 

Value, 
Million 
Mark? 

Amount, 
Million 
Tons 

Value, 
Million 
Marks 

Amount, 
Million 
Tons 

Value, 
Million 
Marks 

1887 

217,357 
628,307 

60.3 
160.7 

311.1 
1,572.6 

29,408 
72,567 

IS  9 

73-8 

40.2 
183.5 

246,765 
700,874 

76.2 
234-5 

351-3 
1,756.1 

IQII  .  . 

Increase  
Percentage  of 
increase.  .  . 

410,950 
189.1 

100.4 
166.5 

1,261.5 
405.5 

43,159 
146.8 

57-9 
364-1 

143-3 
356.5 

454,109 
184.0 

IS8.3 
207.7 

i  ,404  .  8 
399-9 

The  year  1912  showed  still  further  progress.  The  production 
of  coal  rose  to  259,400,000  tons  (177,100,000  tons  of  pit  coal 
and  82,300,000  tons  of  lignite).  Germany's  coal  production  has 
accordingly  been  increased  threefold  during  the  past  twenty-five 
years. 

1  By  Karl  Helfferich.  Adapted  from  Germany's  Economic  Progress  and 
National  Wealth,  1888-1913  (Berlin,  1913),  pp.  60-64. 

ED.  NOTE. — Dr.  Helfferich  was  formerly  director  of  the  Deutsche  Bank  and 
was  Minister  of  Finance  of  Prussia  in  1915.  In  1916  he  was  made  Director  of 
the  Home  Office,  in  which  capacity  he  is  a  dictator  whose  authority  is  supreme 
over  the  domestic  economy  of  Germany.  He  prescribes  the  fashions  as  well  as 
the  diet  of  German  civilian  life. 


RESOURCES  OF  THE  BELLIGERENTS  143 

Among  producing  countries  Germany  occupies  the  third  place, 
after  the  United  States  and  England,  as  shown  by  the  following 
table: 


Countries 

Coal  Production  (Including 
Lignite)  in  1,000,000  Tons 

Percentage  of 
Increase 

1886 

1911 

United  States  

103.1 
160.0 
73-7 

20.8 

19.9 
17-3 

450.2 
276.2 

234-5 
49.2 

39-3 
23.1 

336.6 
72.6 
218.1 

136.5 
97.5 

33-5 

Great  Britain  and  Ireland  

Germany  

Austro-Hungary  

France  

Belgium  

The  United  States,  which  still  occupied  the  second  position  in 
1886,  is  now  far  in  the  lead.  But  Germany  has  now  nearly  overtaken 
England,  which  occupied  the  first  position  twenty-five  years  ago  with 
a  production  more  than  twice  as  great  as  ours.  In  the  year  1912 
Germany's  coal  production  was  259,400,000  tons,  and  that  of  Great 
Britain  and  Ireland  264,700,000  tons  (preliminary  figures).  The 
reduction  of  the  output  in  England  was  in  part  due,  however,  to  the 
strike  of  coal  miners  in  that  year. 

About  one-fifth  of  the  total  coal  production  of  the  world  today 
falls  to  Germany. 

The  expansion  of  the  iron  industry  has  been  not  less  remark- 
able. The  production  of  iron  ores  within  the  German  customs 
union  (including  Luxemburg)  amounted  in  the  year  1887  to 
10,664,000  tons,  in  the  year  1911  to  29,879,000  tons,  or  a  threefold 
increase. 

Nevertheless  our  home  production  of  ores  was  not  nearly  enough 
to  supply  the  requirements  of  our  furnaces,  and  they  had  to  be  sup- 
plemented by  a  steadily  increasing  import  of  foreign  ores,  as  the 
following  table  shows: 


IMPORTS 

EXPORTS 

EXCT 

SS  OF 

i  ,000  TONS 

i  ,000  TONS 

Exports 

Imports 

1887  . 

1,036   2 

1,744.6 

708.4 

IOI2 

I2,I2O.  I 

2.3O9.6 

9,810.5 

144 


ECONOMICS  OF  WAR 


The  production  of  pig  iron  developed  as  shown  by  the  next 
table: 


FURNACES  IN 
OPERATION 

AVERAGE 
NUMBER  OF 
WORKMEN 
EMPLOYED 

RAW 

MATERIALS 
SMELTED 
i  ,000  TONS 

TOTAL  PRODUCTION  OF 
PIG  IRON 

i  ,000  Tons 

MillionMarks 

1887  

212 

313 
45-6 

21,432 
47,546 

121.  5 

12,057 
45,068 

273.8 

4,024 
15,574* 

287.0 

166.4 
867.9 

421  .6 

igil  

Percentage  of  In- 
crease   

*  The  production  of  pig  iron  in  1912  was  17,853,000  tons. 

The  production  of  pig  iron  in  Germany  during  the  past 
quarter  of  a  century  has  accordingly  been  increased  more  than 
fourfold. 

Germany  now  occupies  the  second  place  among  producing 
countries,  as  shown  by  the  following  table: 

PIG-IRON  PRODUCTION  (IN  1,000  TONS) 


Countries 

1887 

IQII 

Percentage  of 
Increase 

United  States   

6,<?2O 

24,028 

^68   ? 

Germany  

4,024 

15,574 

387.0 

Great  Britain  and  Ireland  

7,681 

IO.O33 

^o  6 

France  

1,568 

4,411 

281.  * 

Russia  

612 

3,  588 

486.? 

Belgium  

7?6 

2,106 

178  6 

Here,  too,  the  United  States,  by  reason  of  her  enormous  deposits 
of  ores,  is  far  in  advance  of  other  countries. 

Germany,  whose  production  twenty-five  years  ago  was  only  a 
little  more  than  half  that  of  the  United  Kingdom,  which  then  occupied 
the  first  position,  had  a  production  of  more  than  10,000,000  tons 
of  pig  iron  in  the  year  1903  and  thereby  exceeded  England's  pro- 
duction for  the  first  time;  but  since  that  time  the  German  production 
has  increased  to  more  than  15,800,000  tons  in  1911  and  17,000,000 
tons  in  1912,  whereas  England's  production  has  remained  at  about 
10,000,000  tons. 

The  world's  production  of  pig  iron  now  amounts  to  about  75,000,- 
ooo  tons,  of  which  about  one-fourth  falls  to  Germany. 


RESOURCES  OF  THE  BELLIGERENTS 


145 


The  next  table  gives  a  view  of  steel  production  in  the  most 
important  countries: 

STEEL  PRODUCTION  (IN  1,000  TONS) 


Countries 

1886 

IQIO 

Percentage  of 
Increase 

United  States  

2  6oA    A. 

26  CI2    A 

OIO    1 

Germany  

QZA.   6 

13  698  6* 

i  lie  o 

Great  Britain  

2.4.O3  .  2 

6,106.8 

I  fA     I 

France  

427    6 

3.3QO    3 

602  o 

Russia  

241.8 

2,3i;o  o 

871    2 

Belgium  

1  64..O 

1,4-40    ^ 

78l  6 

*In  the  year  1912  Germany's  steel  production  was  15.019,300  tons. 

2.    UTILIZATION  OF  POWER  IN  GERMANY1 

To  what  extent  the  use  of  steam  power  has  increased  in  Germany 
during  the  past  quarter  of  a  century — and  this  despite  the  fact  that 
other  kinds  of  power  came  more  and  more  into  competition  with 
steam — is  illustrated  by  the  following  figures:  In  Prussia's  industries 
the  capacity  of  steam-engines  amounted  in  1882  to  222,000  horse- 
power, in  1895  to  2,385,000  horse-power,  and  in  1907  to  5,190,000 
horse-power.  In  these  twenty-five  years,  therefore,  the  capacity 
increased  more  than  fourfold,  and  in  the  twelve  years  from  1895  to 
1907  it  was  more  than  doubled.  In  the  whole  Empire,  for  which 
comparative  figures  are  available  only  since  1895,  the  development 
was  similar.  In  the  year  1907  the  census  showed  124,000  steam- 
engines  with  a  capacity  of  7,587,000  maximum  horse-power,  or  5,185,- 
ooo  effective  horse-power.  What  these  figures  mean  becomes  clearer 
when  we  compare  mechanical  and  human  capacity  for  work.  The 
effective  capacity  of  one  mechanical  horse-power  can  be  placed  at 
about  the  equivalent  of  the  physical  labour  capacity  of  ten  men. 
Upon  this  basis  the  actual  work  done  by  German  steam-engines  in 
the  year  1907  was  equivalent  to  the  work  done  by  52,000,000  men; 
and  the  increase  of  actually  effective  steam  horse-power  from  1895 
to  1907  was  equivalent  to  an  increase  of  the  working  population  by 
about  28,000,000  men.  These  figures  should  be  placed  in  juxta- 
position to  those  of  the  working  population  of  the  German  Empire 
which  showed  for  the  year  1895  18,900,000  persons  and  24,600,000 


1  By  Karl  Helfferich  (see  p.  142).     Adapted  from  Germany's  Economic  Progress 
and  National  Wealth,  1888-1913  (Berlin,  1913),  pp.  22-28. 


146  ECONOMICS  OF  WAR 

for  1908.  In  the  year  1895  there  was,  accordingly,  for  each  person 
engaged  in  labour  not  much  more  than  one  equivalent  of  his  labour 
represented  by  steam  power.  But  whereas  the  labouring  population 
increased  from  1895  to  1907  by  5,700,000  persons,  the  steam-engines 
of  Germany  underwent  an  increase  of  2,800,000  horse-power;  hence 
the  steam  power  in  1907  represented  more  than  two  equivalents  of 
human  labour  for  each  person  employed  in  gainful  occupations. 

In  reality  the  increase  of  mechanical  labour  power  was  even 
considerably  greater  than  finds  expression  in  the  above  figures;  for 
whereas  steam  was — along  with  water  power,  which  was  relatively 
little  developed — almost  the  exclusive  source  of  power  for  motor 
purposes  till  into  the  last  quarter  of  the  nineteenth  century,  the 
development  of  the  electrical  industry  and  the  invention  and  improve- 
ment of  explosive  motors  has,  during  the  twenty-five  years  under 
consideration,  raised  up  a  new  and  rapidly  developing  competitor 
for  steam  power. 

The  electric  current,  from  which  the  transformation  of  motor 
technique  during  the  past  quarter  of  a  century  proceeded,  found 
application  at  first  and  for  a  long  time  only  in  weak-current  dynamics. 
The  beginning  was  made  with  the  invention  of  the  electric  telegraph 
in  the  third  decade  of  the  nineteenth  century;  it  was  not  followed 
till  three  decades  later  by  the  invention  of  the  telephone. 

The  application  of  electricity  in  strong-current  dynamics,  which 
has  produced  in  recent  decades  a  complete  revolution  in  power  and 
labour-saving  machinery,  had  its  origin  in  the  invention  of  the 
dynamo  machine  and  in  the  solution  of  the  problem  of  power  transmis- 
sion immediately  connected  with  that  invention.  The  enormous 
advantages  in  the  use  of  electrical  energy  depend  upon  power  trans- 
mission, which  makes  it  possible  to  utilise  sources  of  power  which, 
where  nature  placed  them,  had  hitherto  been  economically  worth- 
less; furthermore  it  lies  in  the  almost  unlimited  divisibility,  in 
an  economically  rational  manner,  of  the  power  generated  at  a 
central  point,  and  in  its  distribution  to  any  place  in  any  amounts 
desired. 

Water  power,  especially,  assumed  a  new  importance  alongside  of 
the  steam-engine  as  a  source  of  energy.  Water  power  must  therefore 
be  converted  on  the  spot  into  energy  that  can  be  economically  utilised; 
and  there  has  only  been  a  possibility  of  doing  this  at  a  distance  from 
the  water  power  itself,  since  energy  has  become  transportable  in  the 
form  of  the  electric  current. 


RESOURCES  OF  THE  BELLIGERENTS  147 

The  transmission  of  electricity,  moreover,  has  rendered  it  possible 
to  make  an  intense  use  of  fuel  which  previously  could  not  be  used  at 
all,  or  only  slightly  so.  That  is  especially  true  of  low-grade  fuels, 
which  would  not  pay  the  expense  of  long  transportation,  but  can  be 
burnt  at  the  place  of  origin  for  generating  steam,  now  that  it  is  possible 
to  transmit  to  great  distances  at  little  cost  the  energy  thus  generated. 

But  above  all,  the  possibility  of  transmitting  electrical  power  has 
shown  extraordinary  results  in  connection  with  the  development  of 
the  gas-engine.  By  means  of  gas-motors  the  gas  produced  in  making 
coke,  which  was  at  first  used  only  for  illuminating  purposes,  was  also 
made  available  for  generating  power.  The  gas-motor  next  made  it 
possible  to  convert  other  gases  of  slight  heating  value,  like  the  gases 
escaping  from  blast  furnaces,  into  energy  in  a  rational  manner.  Dur- 
ing the  decade  just  elapsed  the  use  of  large  gas-engines  in  iron-works 
made  enormous  progress. 

A  new  field  for  the  big  gas-engine  has  just  begun  to  be  opened 
within  a  very  few  years  through  the  invention  of  a  practical  process 
for  gasifying  peat,  lignite,  etc.  The  gases  thus  produced  are  trans- 
formed into  electrical  energy,  which  is  distributed  through  district 
stations.  Ammonia,  as  a  valuable  by-product,  is  saved  in  converting 
peat  into  gas.  Through  this  latest  progress  a  new  power-source  of 
enormous  extent  has  been  opened,  especially  in  the  broad  moors  of 
Germany,  the  utilisation  of  which  is  today  still  in  its  most  incipient 
stage.  This  source  of  energy  is  all  the  more  important  since  the 
working-up  of  the  peat  transforms  at  the  same  time  into  arable  land 
the  moor  areas,  which  have  hitherto  been  almost  worthless. 

While  the  development  of  the  big  gas-engine,  in  which  Germany 
is  far  ahead  of  all  other  countries,  is  immediately  connected  with 
electricity,  the  invention  and  perfection  of  other  combustion-motors, 
also  an  achievement  of  the  most  recent  years,  have  been  independent 
of  any  such  connection.  This  has  been  the  case  particularly  with 
small  motors  for  automobiles  and  airships,  which  have  hitherto  used 
benzine  almost  exclusively  as  fuel.  The  recent  effort  to  replace 
benzine  by  benzol  and  other  products  of  coal  tar  are  promising.  A 
new  outlook  is  opened  by  the  Diesel  motor,  which,  in  place  of  high- 
priced  benzine,  uses  cheap  crude  oil  as  fuel,  besides  tar-oil  and  recently 
even  coal-tar  directly. 

This  brief  survey  may  suffice  to  show  to  what  extent  hitherto 
unused  natural  sources  of  power  have  been  pressed  into  the  service 
of  humanity  in  the  course  of  the  past  twenty-five  years.  It  is  evident 


148  ECONOMICS  OF  WAR 

that  this  enormous  abundance  of  newly-created  motor  power  must 
inaugurate  a  new  epoch  in  the  development  of  machinery. 

3.    CORRELATED  INDUSTRIAL  PROCESSES1 

One  of  the  most  important  elements  in  the  maintenance  of  the 
collective  German  industry  under  the  present  conditions  is  the  fact 
that  no  indispensable  intermediate  link  is  missing  in  the  large  processes 
of  production.  Germany  produces  herself  all  her  half-finished  goods, 
and  she  utilizes  the  residuary  products  of  her  industrial  processes  for 
the  manufacture  of  valuable  auxiliary  commodities  with  such  financial 
results  that  no  other  industrial  nation  in  the  world  even  approaches 
her  in  this  respect.  What  these  auxiliary  products  mean  to  Germany 
at  present  is  more  especially  demonstrated  by  sulphate  of  ammonia 
and  benzol.  How  much  the  want  of  important  links  in  production 
can  harm  a  country  in  her  industrial  processes  is  demonstrated  in 
England,  where  the  inadequate  development  of  many  auxiliary  and 
vital  industries  has  almost  crippled  some  of  the  country's  chief  lines 
of  manufacture.  Thus  the  stoppage  of  the  German  dyestuff  import, 
which,  in  money,  represents  only  about  a  million  sterling,  threatens 
the  English  textile  industry,  the  English  wall-paper  industry,  and 
many  other  branches,  with  a  turnover  of  many  millions.  In  the  same 
way  the  absence  of  cheap  German  half-finished  goods  has  deprived 
the  English  iron  industry  of  an  important  intermediate  link.  Further, 
the  stoppage  of  mining  timber  has  gravely  inconvenienced  the 
collieries. 

Industrially  the  long-established  and  growing  British  principle  of 
producing  entirely  finished  goods  and  importing  the  raw  and  inter- 
mediate products  of  great  industries  has  proved  inferior  to  the 
German  method  in  time  of  war.  This  latter  aims  at  a  complete 
organization  of  an  entire  manufacturing  process  in  comprehensive 
works,  which,  separately  or  together,  cover  the  entire  series  of  opera- 
tions needed.  The  industrial  expansion  of  Germany,  although  it  is 
much  younger  than  that  of  England,  has  been  laid  out  on  more 
systematic  lines  and  in  such  a  way  as  to  render  the  country  more 
independent  of  foreign  aid.  Under  the  difficult  and  strenuous 
conditions  of  war  it  has  demonstrated  the  extreme  value  of  system  and 
method  and  the  advantages  which  they  confer  on  a  nation  when  it  is 
cut  off  from  the  lands  from  which  it  draws  its  raw  materials. 

1  Adapted  from  "German  System  and  Method,"  Scientific  American  Supple- 
ment (March  6,  1915),  p.  155. 


RESOURCES  OF  THE  BELLIGERENTS  149 

4.     GERMANY'S  STRATEGIC  RAILWAYS 
A.    IN  GENERAL1 

The  Army  and  Navy  Journal,  April  10,  1915,  quotes  from  the  result 
of  a  survey  by  a  Dutch  General  of  the  development  of  the  German 
railway  system  from  a  military  point  of  view  since  the  Franco- 
Prussian  War.  As  early  as  1870-71  there  were  at  the  disposal  of 
the  German  military  authorities  all  together  7  railroad  lines  in  North 
Germany  and  3  in  South  Germany.  Only  one,  that  from  Berlin  to 
Cologne,  had  double  track.  Yet  with  these  facilities  it  was  possible 
to  convey  16  army  corps,  an  aggregate  of  450,000  men,  to  the  frontier 
in  1 1  days.  Since  then  military  authorities  have  never  ceased  in  the 
development  of  the  railway  system  on  a  strategical  basis.  The  results 
are  striking.  Germany  now  has  12  double- track  railways  lying 
between  Osnabriick  on  the  north  and  Ulm  on  the  south,  125  miles 
east  of  the  Rhine.  Every  army  corps  normally  garrisoned  east  of  this 
district  has  a  double-track  railway  at  its  disposal.  The  same  facilities 
were  also  available  for  the  reserve  army  corps  formed  at  the  time  of 
mobilization. 

No  less  than  18  double-line  bridges  were,  at  the  time  of  the  begin- 
ning of  the  war,  provided  for  the  crossing  of  the  Rhine.  Eight  to  ten 
cavalry  divisions  can  be  conveyed  from  the  Rhine  westward  simul- 
taneously with  the  army  corps  above  referred  to.  Four  brigades  with 
the  requisite  contingent  of  cavalry  and  artillery  require  96  trains. 
All  of  this  number  of  trains  could  be  dispatched  in  the  same  general 
direction  in  12  hours.  Is  was  thus  possible  in  August,  1914,  to  effect 
the  whole  transport  to  the  western  frontier  in  about  20  hours.  The 
transport  of  these  troops  began  on  the  second  day  of  mobilization, 
August  3,  in  the  evening.  It  was  completed  at  noon  on  August  4. 
During  the  night  the  frontier  was  passed.  Liege  was  assaulted  on 
August  5  and  6. 

For  the  transportation  of  troops  from  the  western  to  the  eastern 
front  6  double-track  railways  were  available.  The  distance  from 
Maubeuge  on  the  west  to  Konigsberg,  just  short  of  the  Russian  frontier 
on  the  northeast,  is  994  miles.  A  military  train  ordinarily  makes 
about  250  miles  in  24  hours.  The  journey,  then,  occupied  about  four 

1  By  William  L.  Park.  Adapted  from  Railways  as  a  Part  of  a  System  of 
National  Defense,  pp.  5-6. 

An  address  delivered  before  the  International  Association  of  Railway  Special 
Agents  and  Police,  at  New  Orleans,  La.,  May  25,  1916. 


150  ECONOMICS  OF  WAR 

days.  For  the  transport  of  6  army  corps  of  40,000  men  each,  a  week 
was  generally  allowed.  The  transportation  of  this  number  of  men 
required  124  trains  and  two  or  three  days  were  consumed  in  the 
necessary  preparation. 

The  limited  amount  of  double  trackage  in  this  country  would 
make  impossible  any  similar  movements,  except  in  a  few  sections  of 
the  country,  for  distances  which,  though  absolutely  as  great  as  can 
be  made  within  the  whole  German  Empire,  would  be  comparatively 
small  when  the  extent  of  this  country  is  considered.  Double  trackage 
alone,  however,  would  not  have  been  sufficient  to  make  the  movement 
possible.  The  sufficiency  of  trackage  is  only  one  item.  Its  provision 
and  the  entire  equipment  and  organization  for  its  operation,  even  to  a 
knowledge  of  what  orders  would  be  given  under  any  set  of  circum- 
stances, have  been  a  subject  of  expert  study  and  preparation  there 
for  40  years. 

B.    IN  PARTICULAR1 

In  the  southwest  corner  of  Prussia  is  a  rectangular  piece  of 
territory  the  western  and  eastern  sides  of  which  are  formed  respec- 
tively by  the  Belgian  and  Luxemburg  frontiers  and  the  river  Rhine. 
This  territory  includes  about  3,600  square  miles  and  supports  a 
population,  including  the  great  centres  of  Cologne,  Coblence,  Aix-la- 
Chapelle,  and  Treves,  of  nearly  1,000,000  souls.  In  other  words,  it 
is  an  area  about  half  as  large  as  New  Jersey,  if  we  omit  that  state's 
water  surface,  and  just  about  as  thickly  populated. 

Five  years  ago  this  little  corner  of  Prussia  had  about  15  .10  miles 
of  railway  to  every  100  square  miles  of  territory,  and  New  Jersey 
30 . 23.  In  five  years  the  Prussian  territory  has  increased  her  railway 
mileage  to  28.30,  and  New  Jersey  to  a  little  less  than  30.25. 

Five  years  ago,  in  the  Prussian  territory,  the  only  double  lines 
existing  were  those  from  Cologne  to  Treves,  from  Coblence  to  Treves, 
and  the  two  double  lines,  one  on  each  side  of  the  Rhine,  from  Cologne 
to  Coblence,  thus  forming  the  three  sides  of  a  triangle.  There  was 
also  the  double  track  running  from  Cologne  to  Aix-la-Chapelle. 
These  double  lines  were  fed  as  commerce  required,  by  only  two  sets 
of  single-track  lines,  all  amounting  to  a  little  less  than  550  miles  of 

'By  Walter  Littlefield.  Adapted  from  "Germany's  Strategic  Railways," 
published  in  Current  History,  I  (1914-1915),  1001-4.  Copyright  by  the  New  York 
Times  Co.,  New  York. 

ED.  NOTE. — Walter  Littlefield  (1867 — )  is  a  well-known  author  and  journalist 
of  New  York. 


RESOURCES  OF  THE  BELLIGERENTS  151 

traction — a  very  fair  service,  considering  the  products  of  the  country 
covered. 

In  the  five  years,  without  any  apparent  industrial  and  commercial 
demand  for  it,  this  traction  has  been  increased  to  nearly  twice  its 
length,  or  to  about  1,020  miles.  Villages  like  Dumpelfeld,  Ahrdorf, 
Hillesheim,  Pronsfeld,  and  the  one  health  resort  of  Gerolstein,  of 
comic  opera  fame,  all  of  less  than  1,300  inhabitants,  have  been  linked 
up  by  double-track  lines  with  towns  like  Remagen,  St.  Vith,  -and 
Andernach,  whose  populations  range  from  1,500  to  9,000. 

Five  lines  converge  on  Pelm:  the  double  line  from  Cologne,  the 
new  double  line  from  Remagen  via  Hillesheim,  and  the  single  line 
from  Andernach.  Pelm  is  2f  miles  from  Gerolstein,  and  yet  over 
this  short  distance  between  the  two  villages  there  are  laid  down  six 
parallel  lines  of  rail,  besides  numerous  additional  sidings.  Moreover 
the  double  line  from  Hillesheim  to  Junkerath  crosses  over  the  main 
Cologne-Treves  line  by  a  bridge,  and  runs  parallel  to  it  for  some 
distance  before  turning  off  to  the  left  to  reach  Weiwertz. 

In  fact,  the  knot  of  lines  around  Junkerath,  Pelm,  and  Gerolstein 
is  a  marvel  of  construction  for  heavy,  rapid  transit,  for  no  congestion 
would  arise  in  a  case  of  a  sudden  flood  of  traffic  going  in  various 
directions,  and  to  secure  still  more  freedom  the  line  from  Gerolstein 
to  Pronsfeld  has  been  doubled. 

Few  of  these  lines,  it  is  to  be  noted,  cross  the  frontier.  Three 
of  them  as  late  as  last  May  led  to  blind  terminals  within  less  than  a 
day's  march  from  it — the  double  line  from  Cologne  via  Stolberg  to 
Weiwertz,  the  double  line  from  Cologne  via  Junkerath  and  Weiwertz 
to  St.  Vith,  and  the  double  line  from  Remagen  via  Hillesheim  and 
Pelm  to  Pronsfeld. 

The  cost  of  the  whole  system,  with  its  numerous  bridges  and 
multiple  sidings,  must  have  been  enormous.  The  German  average 
of  $108,500  to  the  mile  would  hardly  cover  it. 

Here  is  what  a  traveler  saw  when  he  visited  this  corner  of  Prussia 
in  May,  1914: 

The  traveler  is  as  much  struck  by  the  significance  of  the  ordinary 
traffic  along  these  lines  as  he  is  by  the  huge  embankments  and  cuttings 
on  which  nothing  has  yet  had  time  to  grow,  and  by  the  inordinate  extent 
and  number  of  the  sidings  to  be  seen  everywhere.  Baby  trains,  consisting 
of  a  locomotive  and  four  short  cars,  dodder  along  two  or  three  times  a  day, 
and  if  a  freight  train  happens  to  be  encountered,  it  will  be  found  to  be 
loaded  with  railway  plant. 


152  ECONOMICS  OF  WAR 

Another  point  that  is  noticeable  is  that  provision  exists  everywhere  at 
these  new  junctions  and  extensions  for  avoiding  an  up-line  crossing  a 
down-line  on  the  level.  The  up-line  is  carried  over  the  down-line  by  a 
bridge,  involving  long  embankments  on  both  sides  and  great  expense,  but 
enormously  simplifying  traffic  problems  when  it  comes  to  a  question  of 
full  troop  trains  pushing  through  at  the  rate  of  one  every  quarter  of  an 
hour,  and  the  empty  cars  returning  eastward  at  the  same  rate. 

The  detraining  stations  are  of  sufficient  length  to  accommodate  the 
longest  troop  train  (ten  cars)  easily,  and  they  generally  have  at  least  four 
sidings,  apart  from  the  through  up  and  down  lines.  Moreover,  at  almost 
every  station  there  are  two  lines  of  siding  long  enough  for  troop  trains,  so 
that  they  can  be  used  to  some  extent  as  detraining  stations,  and  so  that  a 
couple  of  troop  trains  can  be  held  up  at  any  time  while  traffic  continues 
uninterrupted. 

5.     GERMAN  DISCIPLINE1 

In  socialized  Germany  the  state  owns  railroads,  canals,  river 
transportation,  harbors,  telegraphs,  and  telephones.  Banks,  insur- 
ance, pawnshops,  are  conducted  by  the  state.  Municipalities  are 
landlords  of  vast  estates;  they  are  capitalists  owning  street-car  lines, 
gas  plants,  electric-light  plants,  theatres,  markets,  warehouses. 
The  cities  conduct  hospitals  for  the  sick,  shelters  for  the  homeless, 
soup-houses  for  the  hungry,  asylums  for  the  weak  and  unfortunate, 
nurseries  for  the  babies,  homes  for  the  aged,  and  cemeteries  for  the 
dead. 

Add  to  this  the  vast  and  complex  system  of  state  education,  a 
system  of  training  that  aims  at  livelihood.  Nothing  like  the  perfec- 
tion, the  drill;  and  the  earnest,  unsmiling  efficiency  of  these  elementary 
and  trade  schools  exists  anywhere  else  in  the  world.  In  1907  there 
were  9,000,000  children  in  the  elementary  schools,  taught  by  150,000 
teachers,  nearly  all  masters,  as  the  " school  ma'am"  does  not  flourish 
in  the  Kaiser's  realm.  Every  one  of  these  pupils  is  headed  for  a 
bread-and-butter  niche  in  this  land  of  super-orderliness.  And  more 
than  300,000  persons  are  employed  by  the  state  in  some  form  of 
educational  work,  training  the  youth  into  adeptness,  in  all  sorts  of 
schools. 

The  army,  as  well  as  the  school,  brings  home  to  every  German 
family  the  fact  that  the  state  is  watchful — and  jealous.  It  demands 

1  By  Samuel  P.  Orth.  Adapted  from  an  article  in  The  World's  Work,  XXVI, 
315-21.  Copyright  1912. 

ED.  NOTE. — Samuel  P.  Orth  (1873 — )  is  professor  of  political  science  in  Cornell 
University.  He  is  the  author  of  many  books  on  political  and  social  questions. 


RESOURCES  OF  THE  BELLIGERENTS  153 

that  two  full  years  of  every  young  man  be  "socialized";  and  the 
peasant  woman  and  the  artisan's  wife  must  contribute  her  toil  to  the 
toll  that  the  vast  system  of  state  discipline  demands. 

Even  the  church,  that  form  of  organized  social  effort  which  is 
everywhere  first  to  break  away  from  the  regimen  of  the  state,  remains 
"established."  So  I  might  continue  through  almost  every  activity — 
the  vast  system  of  state  railroads,  mines,  shipyards — and  include 
even  art  and  music. 

This  socialized  Germany  is  also  an  industrialized  Germany. 
Everyone  knows  how  cleverly  advertised  are  German  goods.  But  it 
is  always  well  to  remember  that  this  race  of  traders  and  manufacturers 
has  somehow,  in  one  generation,  come  from  a  race  of  solid  scholars, 
patient  artisans,  and  frugal  peasants.  The  old  Germany  has  dis- 
appeared; the  Germany  of  the  spectacles,  the  shabby  coat,  and  the 
book;  the  Germany  of  Heidelberg  and  Weimar.  A  new  order  has 
taken  its  place.  As  you  ride  in  the  great  express  from  Cologne  to 
Berlin  you  never  are  out  of  sight  of  clusters  of  tall,  smoking  chimneys. 
Symbolic  of  the  new  Germany  are  the  Deutsche  Bank,  the  trade  of 
Hamburg,  and  the  steel  works  of  Essen. 

Now,  how  has  it  been  possible  to  make  this  transformation? 
To  create  out  of  a  slow,  plodding,  peasant-artisan  people  an  industrial- 
ized population;  out  of  a  race  of  scholars  a  race  of  manufacturers; 
to  fill  a  land  no  larger  than  one-half  of  Texas  with  65,000,000  people 
who  are  breeding  at  the  rate  of  nearly  a  million  a  year,  and  to  engage 
the  state  in  doing  all  sorts  of  things  for  these  thriving  families  ?  It  is 
the  political  miracle  of  the  century,  and  its  socialized  efficiency  is  the 
talk  of  the  hour.  How  has  it  been  accomplished  ? 

The  Kaiser  has  adapted,  line  for  line  and  point  for  point,  the 
pattern  of  mediaeval  feudalism  to  the  exigencies  of  modern  industrial- 
ism. So,  to  begin  with,  the  Kaiser  has  an  obedient  people,  in  whom 
the  feudal  notion  of  caste  is  second  nature.  Everyone  has  his  place 
and  shall  keep  it.  Such  shifting  as  now  is  tolerated  is  due  to  wealth 
and  to  the  kind  of  ambition  which  luxury  always  awakens. 

You  cannot  have  superimposed  classes  without  obedience.  The 
average  German  is  docile  and  wants  to  be  told  what  to  do. 

The  government  has  its  eager  hands  in  every  pocket,  its  anxious 
fingers  on  every  pulse.  From  the  cradle  to  the  grave  the  state 
watches  the  individual,  commands  him,  and,  in  a  way,  cares  for  him, 
always  seeing  to  it  that  he  has  a  place  in  the  national  economy  and 
that  he  keeps  it. 


154  ECONOMICS  OF  WAR 

To  an  outsider,  of  course,  the  inner  workings  of  the  mind  and  heart 
are  hidden.  But  the  outer  aspect  of  the  German  state  is  perfectly 
patent.  It  is  mechanism — there  can  be  no  doubt  about  it — the 
mechanism  of  the  solar  system.  It  is  a  land  where  every  member  of 
society  has  an  ordained  orbit  and  moves  in  it  around  the  central  sun, 
the  state,  which  radiates  a  mystic  gravitation  into  every  activity — 
almost  every  thought — of  every  man,  woman,  and  child. 

Here  you  see  the  most  varied  activities  held  to  the  ideals  of 
efficiency  through  a  perfected  feudalism.  So  that  all  Carl  and  John 
need  to  do  is  to  obey;  then  they  are  taught  the  rudiments  of  learning 
and  a  trade,  are  insured  against  the  most  disturbing  episodes  of  life, 
assured  also  of  some  leisure,  considerable  amusement,  and  a  decent 
burial.  And  that  is  life! 

Of  all  invented  contrivances  this  German  machine  is  the  most 
amazing — this  vast  enginery  of  state,  with  the  patents  of  Hohenzollern, 
Bismarck  &  Co.  on  every  part,  that  has  reduced  the  life  of  a  great 
people  to  complacent  routine  and  merged  the  rough  eccentricities  of 
all  into  a  uniformity  of  effort  and  ambition. 

Germany's  system  is  built  upon  discipline;  hard,  military,  iron 
discipline,  that  grips  every  baby  in  its  vise  and  forces  every  man  into 
his  place;  a  benevolent  tyranny,  no  doubt,  but  nevertheless  a  tyranny; 
an  efficient  feudalism,  but  none  the  less  a  feudalism  of  self-conscious 
caste  and  fixed  tradition. 

XIV.     Some  Economic  Liabilities  of  the  Allies 
i.    THE  THEORY  OF  LAISSEZ-FAIRE1 

Nature  has  implanted  in  every  man's  breast  an  instinct  which 
teaches  him  intuitively  to  pursue  his  own  happiness;  and  by  con- 
necting the  welfare  of  every  part  of  society  with  that  of  the  whole 
she  has  wisely  ordained  that  he  shall  not  be  able  to  realize  his  own 
wishes  without  contributing  to  the  happiness  of  others. 

Every  man  may  thus  safely  be  intrusted  with  the  care  of  working 
out  his  own  prosperity.  It  is  not  necessary  for  governments,  it  is 
therefore  no  part  of  their  duty,  to  teach  to  individuals  what  will  most 

1  By  Piercy  Ravenstone.  Adapted  from  A  Few  Doubts  as  to  the  Correctness  of 
Some  Opinions  Generally  Entertained  on  the  Subjects  of  Population  and  Political 
Economy  (1821),  pp.  2-3. 

This  is  a  classical  English  statement  of  the  theory  that  an  "invisible  hand," 
as  it  were,  leads  the  individual  in  seeking  his  own  welfare  to  promote  national 
welfare.  The  question  is,  Does  it  promote  national  efficiency  for  war? 


RESOURCES  OF  THE  BELLIGERENTS  155 

conduce  to  the  success  of  their  pursuits;  they  are  ill-calculated  for 
such  a  superintendence.  All  care  of  this  sort  is  on  their  part  wholly 
impertinent.  Their  functions  are  of  quite  a  different  nature;  to 
correct  the  vicious  attachment  to  their  own  interests  which  too 
frequently  induces  men  to  seek  their  own  apparent  good  by  the  injury 
of  others,  which  would  disorder  the  whole  scheme  of  society,  to  bring 
about  what  they  mistakenly  consider  their  own  happiness.  To 
restrain,  not  to  direct,  is  the  true  function  of  the  government;  it  is 
the  only  one  it  is  called  on  to  perform,  it  is  the  only  one  it  can  safely 
execute.  It  never  goes  out  of  its  province  without  doing  mischief. 
The  mischief  is  not  always  apparent,  for  the  constitution  of  the  patient 
is  often  sufficiently  strong  to  resist  the  deleterious  effects  of  the 
quackery.  But  it  is  not  safe  to  try  experiments  which  can  do  no  good, 
merely  because  the  strength  of  the  patient  may  prevent  them  from 
being  injurious. 

The  spirit  of  interference  has  never  manifested  itself  so  strongly 
as  of  late  years.  It  constitutes  the  very  essence  of  modern  political 
economy.  Everything  is  to  be  done  by  the  state;  nothing  is  to  be 
left  to  the  discretion  of  individuals.  It  is  proposed  to  transfer  men 
into  a  species  of  political  nursery  ground,  where  the  quality  of  plants 
is  to  be  regulated  with  mathematical  exactness,  to  be  fitted  to  the 
capacity  of  the  soil;  where  every  exuberance  in  their  shoots  is  to  be 
immediately  pruned  away  and  their  branches  confined  within  the 
bounds  of  the  supporting  espalier. 

2.    SOCIAL  CUSTOMS  AND  EFFICIENCY  IN  WAR1 

In  Anglo-Saxon  and  Latin  countries  women  are  traditionally 
home-keepers.  In  the  Teutonic  nations  they  are  traditionally  co- 
workers  with  their  men  in  the  work  of  the  world.  This  difference  in 
social  customs  is  proving  at  the  present  time  one  of  the  most  powerful 
factors  in  the  world-war. 

The  information  has  been  disclosed  that  the  Allies  were  out- 
numbered on  the  western  front  in  the  spring  and  early  summer  of 
1918.  It  has  seemed  impossible  to  many  people  that  this  could  be 
true;  for — leaving  America  out  of  consideration  at  this  period — is 
not  the  population  of  Great  Britain,  Canada,  Australia,  France,  and 
Italy  greater  than  that  of  the  Central  Powers  ?  It  has  seemed  incred- 
ible that  the  Allies  could  be  outnumbered  in  face  of  the  indisputable 
population  statistics. 

1  An  editorial. 


156  ECONOMICS  OF  WAR 

Numerous  explanations  have  been  offered  for  the  enigma.  The 
one  most  frequently  given  is  the  dissipation  of  British  forces  in 
consequence  of  the  necessity  of  keeping  troops  in  Mesopotamia, 
Egypt,  and  Saloniki;  the  maintenance  of  a  large  naval  force,  etc. 
Another  explanation  is  the  more  effective  utilization  by  Germany  of 
her  prisoners  of  war,  including  civilian  populations  from  conquered 
territories,  the  number  of  such  prisoners  employed  on  farms  and  in 
industrial  establishments  in  Germany  being  estimated  in  1917  at  one 
million  two  hundred  thousand.  Still  another  explanation  is  that  the 
German  organization  has  more  effectively  mobilized  the  man  power 
of  the  country  in  consequence  of  a  more  rigid  curtailment  of  non- 
essential  .production.1  Not  so  many  men  are  required  back  of  the 
lines  in  Germany  relatively  to  the  number  engaged  at  the  front  as 
in  the  allied  countries,  particularly  in  England,  where  many  are  still 
engaged  in  pursuits  which  are  relatively  unimportant.  The  most 
important  factor  in  the  situation,  however,  appears  to  be  the  part 
that  women  play  in  industry.  It  has  been  estimated  that  there 
were  one  million  five  hundred  thousand  women  engaged  in  British 
industry  in  the  spring  of  1918.  The  English  have  derived  great 
satisfaction  from  this  remarkable  showing  and  it  has  given  rise  to 
numerous  volumes  and  scores  of  articles.  Under  the  circumstances, 
that  is,  in  view  of  the  age-old  tradition  against  women  in  industry, 
the  British  women  have  done  extremely  well.  Their  spirit,  in  the  face 
of  a  most  cherished  heritage,  coupled  with  powerful  opposition  from 
British  trades  unions,  is  admirable.  But  in  contrast  with  the  part 
women  are  playing  in  the  Central  Powers  this  showing  could  in  the 
spring  of  1918  cause  only  anxiety  as  to  the  outcome  of  the  struggle. 

The  German  woman's  participation  in  agriculture  is  proverbial, 
and  the  war  has  of  course  necessitated  an  even  heavier  carrying  of  the 
burden  of  agricultural  production  by  female  labor.  This  is  equally 
true  in  Austria,  Bulgaria,  and  Turkey.  But  it  is  not  only  in  agri- 
culture that  the  German  women  are  playing  a  tremendously  important 
r61e.  Even  before  the  war  there  was  a  steadily  increasing  flow  of 
women  into  industrial  pursuits  in  Teutonic  countries.  While  the 
complete  statistics  for  women  in  industry  in  Germany  at  the  present 
time  are  not  available,  it  was  reported  that  as  early  as  the  middle  of 
1916  there  were  more  women  than  men  employed  in  the  great  metal 
industries  of  the  Berlin  region,  and  on  March  i,  1917,  it  is  reported 

1  For  a  statement  of  the  conscription  law  of  Germany,  December,  1916,  see 
selection  XVIII,  36  (chap.  v). 


RESOURCES  OF  THE  BELLIGERENTS  157 

that  there  were  3,973,457  women  insured  in  the  sick-benefit  funds  of 
Germany.1  Inadequate  as  these  data  are,  they  clearly  show  an  enor- 
mously greater  participation  of  women  in  essential  production  in 
Germany  than  in  England.  Between  the  ages  of  eighteen  and  forty- 
five  there  are  in  the  neighborhood  of  1 1 ,000,000  women  in  Germany, 
and  it  is  probably  a  conservative  estimate  that  three-quarters  of  these 
are  effectively  employed  in  the  creation  of  the  basic  necessities  for 
modern  warfare.  With  8,000,000  German  women  in  industry  as 
against  1,500,000  women  in  English  industry  it  means  a  release  of 
6,500,000  men,  roughly  speaking,  for  the  military  establishments. 
Nor  do  knitting  and  other  forms  of  household  manufacture  take  the 
place  of  machine  production;  they  may  reduce  the  above  differences, 
but  they  do  not  eliminate  them.  The  German  organization  is  thus 
enabled  to  place  a  much  larger  percentage  of  the  man  power  of  the 
nation  in  the  army  than  it  has  been  possible  for  the  Allies  to  do. 
Possibly,  in  view  of  Anglo-Saxon  social  sanctions,  it  is  the  best  that  we 
can  hope  that  at  the  end  of  four  years  of  war  1,500,000  British  women 
should  be  engaged  in  industry.  If  so,  we  must  set  it  down  as  one  of  the 
serious  economic  liabilities  of  the  Allies,  a  liability  which  can  be  offset 
only  by  such  a  marked  superiority  of  man  power  as  the  entrance  of 
America  into  the  conflict  affords.  It  is  important  to  remember,  how- 
ever, that  without  America's  entrance  into  the  war  the  Allies  would 
quite  obviously  have  had  to  succumb  through  defeat  on  the  western 
front,  a  defeat  made  possible  because  the  "economic  position  of 
women"  in  the  Central  Powers  is  such  that  they  have  been  enabled 
to  place  a  larger  percentage  of  their  man  power  in  the  active  military 
establishments  than  have  the  Entente  nations. 

3.    THE  PENALTY  OF  TAKING  THE  LEAD  IN  INDUSTRY2 

An  industrial  system  which,  like  the  English,  has  been  long 
engaged  in  a  course  of  improvement,  extension,  innovation,  and 
specialization  will  in  the  past  have  committed  itself,  more  than  once 

1  See  German  Trade  and  the  War  (Miscellaneous  Series,  No.  65,  Department  of 
Commerce),  p.  90. 

J  By  Thorstein  Veblen.  Adapted  from  Imperial  Germany  and  the  Industrial 
Revolution,  pp.  124-28.  Copyright,  1915.  Published  by  B.  W.  Huebach,  New 
York. 

ED.  NOTE. — Professor  Veblen  is  one  of  the  best  known  of  American  econo- 
mists. He  is  the  author  of  several  volumes  and  a  large  number  of  articles  on 
economic  and  social  questions. 


158  ECONOMICS  OF  WAR 

and  in  more  than  one  connection,  to  what  was  at  the  time  an  adequate 
scale  of  appliances  and  schedule  of  processes  and  time  adjustments. 
Partly  by  its  own  growth  and  by  force  of  technological  innovations 
designed  to  enlarge  the  scale  or  increase  the  tempo  of  production  or 
service,  the  accepted  correlations  in  industry  and  in  business,  as  well 
as  the  established  equipment,  are  thrown  out  of  date.  And  yet  it 
is  by  no  means  an  easy  matter  to  find  a  remedy;  more  particularly 
is  it  difficult  to  find  a  remedy  that  will  approve  itself  as  a  sound 
business  proposition  to  a  community  of  conservative  business  men 
who  have  a  pecuniary  interest  in  the  continued  working  of  the  received 
system,  and  who  will  not  be  endowed  with  much  insight  into  tech- 
nological matters  anyway.  So  long  as  the  obsolescence  in  question 
gives  rise  to  no  marked  differential  advantage  of  one  or  a  group  of 
these  business  men  as  against  competing  concerns,  it  follows  logically 
that  no  remedy  will  be  sought.  An  adequate  remedy  by  detail 
innovation  is  not  always  practicable;  indeed,  in  the  more  serious 
conjunctures  of  the  kind  it  is  virtually  impossible,  in  that  new  items 
of  equipment  are  necessarily  required  to  conform  to  the  specifications 
already  governing  the  old. 

So,  e.g.,  it  is  well  known  that  the  railways  of  Great  Britain,  like 
those  of  other  countries,  are  built  with  too  narrow  a  gauge,  but  while 
this  item  of  " depreciation  through  obsolescence"  has  been  known  for 
some  time,  it  has  not  even  in  the  most  genial  speculative  sense  come 
up  for  consideration  as  a  remediable  defect.  In  the  same  connection 
American,  and  latterly  German,  observers  have  been  much  impressed 
with  the  silly  little  bob  tailed  carriages  used  in  the  British  goods 
traffic;  which  were  well  enough  in  their  time,  before  American  or 
German  railway  traffic  was  good  for  anything  much,  but  which  have 
at  the  best  a  playful  air  when  brought  up  against  the  requirements  of 
today.  Yet  the  remedy  is  not  a  simple  question  of  good  sense.  The 
terminal  facilities,,  tracks,  shunting  facilities,  and  all  the  ways  and 
means  of  handling  freight  on  this  oldest  and  most  complete  of  railway 
systems  are  all  adapted  to  the  bobtailed  car.  So,  again,  the  roadbed 
and  metal,  as  well  as  the  engines,  are  well  and  substantially  con- 
structed to  take  care  of  such  traffic  as  required  to  be  taken  care  of 
when  they  first  went  into  operation,  and  it  is  not  easy  to  make  a 
piecemeal  adjustment  to  later  requirements.  It  is  perhaps  true  that, 
as  seen  from  the  standpoint  of  the  community  at  large  and  its  material 
interest,  the  out-of-date  equipment  and  organization  should  prof- 


RESOURCES  .OF  THE  BELLIGERENTS  159 

itably  be  discarded — "junked,"  as  the  colloquial  phrase  has  it — and 
the  later  contrivances  substituted  throughout;  but  it  is  the  discretion 
of  the  business  men  that  necessarily  decides  these  questions,  and  the 
whole  proposition  has  a  different  value  as  seen  in  the  light  of  the 
competitive  pecuniary  interests  of  the  business  men  in  control. 

This  instance  of  the  British  railway  system  and  its  shortcomings  in 
detail  is  typical  of  the  British  industrial  equipment  and  organization 
throughout,  although  the  obsolescence  will  for  the  most  part  perhaps 
be  neither  so  obvious  nor  so  serious  a  matter  in  many  other  directions. 
Towns,  roadways,  factories,  harbors,  habitations,  were  placed  and 
constructed  to  meet  the  exigencies  of  what  is  now  in  a  degree  an 
obsolete  state  of  the  industrial  arts,  and  they  are,  all  and  several, 
"irrelevant,  incompetent,  and  impertinent"  in  the  same  degree  in 
which  the  technological  scheme  has  shifted  from  what  it  was  when 
these  appliances  were  installed.  They  have  all  been  improved, 
"perfected,"  and  adapted  to  meet  changing  requirements  in  some 
passable  fashion;  but  the  chief  significance  of  this  work  of  improve- 
ment, adaptation,  and  repair  in  this  connection  is  that  it  argues  a 
fatal  reluctance  or  inability  to  overcome  this  all-pervading  deprecia- 
tion by  obsolescence. 

All  this  does  not  mean  that  the  British  have  sinned  against  the 
canons  of  technology.  It  is  only  that  they  are  paying  the  penalty  of 
having  been  thrown  into  the  lead  and  so  having  shown  the  way.  At 
the  same  time  it  is  not  to  be  imagined  that  this  lead  has  brought 
nothing  but  pains  and  penalties.  The  shortcomings  of  this  British 
industrial  situation  are  visible  chiefly  by  contrast  with  what  the 
British  might  be  doing  if  it  were  not  for  the  restraining  dead  hand  of 
their  past  achievement,  and  by  further  contrast,  latterly,  with  what 
the  new-come  German  people  are  doing  by  use  of  the  English  tech- 
nological lore.  As  it  stands,  the  accumulated  equipment,  both  mate- 
rial and  immaterial,  both  in  the  way  of  mechanical  appliances  in 
hand  and  in  the  way  of  technological  knowledge  ingrained  in  the 
population  and  available  for  use,  is  after  all  of  very  appreciable  value; 
though  the  case  of  the  Germans  should  make  it  plain  that  it  is  the 
latter,  the  immaterial  equipment,  that  is  altogether  of  first  conse- 
quence rather  than  the  accumulation  of  "production  goods"  in 
hand.  These  "production  goods"  cost  nothing  but  labor;  the 
immaterial  equipment  of  technological  proficiency  costs  age-long 
experience. 


160  ECONOMICS  OF  WAR 

XV.     The  Economic  Isolation  of  Germany1 

The  question  of  Germany's  economic  ability  to  hold  out  during 
the  war  is  of  paramount  general  interest.  It  is  the  first  time  under 
modern  conditions  that  an  attempt  has  been  made  to  isolate  a  great 
nation  completely  from  the  outer  world,  and  therefore  also  the  first 
time  that  a  country,  hitherto  existing  as  an  integral  link  in  the  world's 
economic  system,  is  put  to  the  test  of  having  in  the  main  to  support 
itself  and  prove  its  ability  to  subsist  under  these  new  conditions.  In 
wondering  doubt  the  world  has  awaited  the  result. 

To  begin  with,  it  was  no  doubt  the  all  but  universal  opinion  that 
Germany  would  be  able  to  hold  out  for  a  limited  period  until  her 
accumulated  supplies  were  exhausted,  and  then  have  to  give  way. 
When  the  fighting  had  lasted  six,  twelve,  and  twenty  months,  and 
Germany  still  showed  undiminished  economic  strength,  discussion 
started  everywhere  regarding  the  economic  possibility  of  such  a 
demonstration  of  strength.  The  interest  in  these  discussions  may 
best  be  judged  by  the  fact  that  well-nigh  everybody  has  felt  the 
necessity  of  forming  his  own  theory  regarding  the  problem  of  war 
finance.  For  this  reason  my  attempt  to  analyze  the  problem  may 
count  upon  interest  from  the  great  majority  of  readers  who  do  not 
generally  devote  time  to  the  study  of  such  subjects. 

There  seem  to  be  two  main  fallacies  that  have  led  England  and  a 
large  part  of  the  rest  of  the  world  to  the  conclusion  that  Germany 
could  not  stand  a  prolonged  period  of  isolation.  The  one  is  the  exag- 
gerated idea  people  have  regarding  the  importance  of  foreign  trade 
under  modern  economic  conditions.  This  view  is  natural  to  England 
and  to  a  certain  extent  justified  by  conditions.  But  as  for  the  other 
great  nations,  it  is  mainly  a  popular  illusion  arising  from  the  dis- 
proportionate interest  devoted  to  foreign  trade  in  politics  and  in 
statistics.  The  other  fallacy  is  that  people  live  on  accumulated 
riches,  on  "money,"  or  large  stocks  of  commodities.  The  entirely 

1  By  Gustave  Cassel.  From  Germany's  Economic  Power  of  Resistance, 
pp.  76-80.  Copyright  by  the  Jackson  Press,  1916. 

ED.  NOTE. — The  author  is  professor  of  political  economy  in  the  University  of 
Stockholm,  and  his  writings  are  well  known  to  all  students  of  economic  theory.  In 
February,  1916,  he  was  invited  to  visit  Germany  as  a  neutral  economist  and  to 
make  a  report  on  financial  and  economic  conditions  there.  There  is  evidence 
that  he  was  "steered"  through  Germany  by  the  government.  But  however  this 
may  be,  his  conclusions  seem  to  have  been  verified  by  the  staying  strength 
exhibited  by  Germany  since  that  time.  The  paragraphs  quoted  here  are  the 
author's  conclusions. 


RESOURCES  OF  THE  BELLIGERENTS  161 

exaggerated  ideas  as  to  the  importance  of  stocks  of  commodities  under 
modern  economic  conditions  has  led  to  the  conclusion  that  a  belliger- 
ent country,  which  does  not  receive  help  from  outside  must  sooner  or 
later  exhaust  its  resources. 

The  course  of  the  war  has  already  proved  the  untenable  nature  of 
these  views  and  fully  proved,  first — as  sound  teachings  of  political 
economy  long  ago  should  have  proved — that  a  nation  lives  mainly  on 
what  it  day  by  day  creates  by  its  productive  work,  and  second,  that 
a  country  like  Germany  is  able  to  do  so  without  exchange  of  com- 
modities with  foreign  countries. 

But  the  human  mind  is  slow  to  divest  itself  of  ideas  to  which  it  has 
become  accustomed.  In  England  people  are  reluctant  to  admit  fully 
the  truth  forced  upon  them  by  actual  development;  they  cling  to  the 
idea  that  it  is  only  the  incompleteness  of  the  blockade  that  has  enabled 
Germany  to  live,  that  she  will  ultimately  be  starved  into  submission 
if  only  every  little  hole  can  be  still  more  effectively  stopped.  But 
they  are  mistaken.  As  regards  supplies  from  the  northern  countries, 
they  are  under  present  conditions  very  acceptable  to  Germany;  but 
it  would  be  utterly  wrong  to  ascribe  to  them  any  sort  of  influence  as 
regards  Germany's  ability  to  hold  out.  Of  great  importance  are  the 
supplies  from  the  southeast.  But  Germany  is  laying  her  plans  for 
continued  war  economy  without  taking  count  even  of  these  supplies. 

The  strongest,  in  fact  the  conclusive,  proof  that  Germany  can 
economically  hold  out  is  that  she  has  already  done  so  for  twenty 
months.  In  the  preceding  chapters  I  have  shown  that  the  first  year 
of  the  war  was  by  no  means  specially  favorable  economically,  and 
that  even  taking  the  whole  period  of  the  war  this  cannot  be  considered 
the  case;  that,  on  the  contrary,  a  number  of  circumstances  indicate 
that  Germany's  economic  conditions  in  certain  important  directions 
are  better  to-day  [1916]  than  during  the  earlier  phases  of  the  war.  I 
have  given  reasons  for  the  notion  that  this  opinion,  financially  con- 
sidered, may  well  be  assumed  to  outweigh  the  deterioration  in  other 
fields.  This  circumstance  is  obviously  subversive  of  the  theory  on 
which  the  blockade  of  Germany  is  based. 

Of  course  Germany  is  not  so  strong  economically  as  during  the 
last  years  of  peace.  But  in  peace-time  consumption  had  reached  a 
scale  which  could  stand  a  great  reduction.  We  have  seen  that  this 
reduction  need  not  in  essentials  reduce  the  German  to  a  lower  level 
of  consumption  than  that  on  which  many  other  civilized  people  exist 
or  than  even  the  Germans  themselves  were  accustomed  to  a  very  few 


162  ECONOMICS  OF  WAR 

decades  since,  and  on  which  they  were  an  active  and  powerful  people. 
The  lowering  of  the  standard  of  living — it  may  appear  to  outsiders 
important  and  for  those  concerned  hard — cannot  involve  any  serious 
harm  or  prevent  the  continuation  of  the  war. 

Let  any  Swede  who  imagines  that  the  German  people  have  reached 
the  lowest  standard  of  living  that  a  nation  can  endure  call  to  mind  only 
for  a  moment  the  privations  our  people  suffered  during  Sweden's  wars. 
By  comparison,  what  has  hitherto  been  demanded  from  the  German 
population  in  the  way  of  economic  sacrifice  will  then  appear  insig- 
nificant. And  if  any  German  thinks  of  what  his  people  had  to  pass 
through  during  the  long  and  bitter  wars  that  from  time  to  time  have 
been  waged  in  and  over  Germany,  he  will  admit  that  any  comparison 
with  present  times  is  absurd. 

If  the  war  were  to  continue  for  years  Germany  would  be  weakened 
economically.  But  there  is  hardly  any  real  reason  to  assume  that  this 
weakening  should  occur  more  rapidly  in  Germany  than  in  the  countries 
of  her  opponents.  If  the  belligerents'  economic  power  is  used  up  by 
degrees,  but  about  the  same  degree  for  all,  the  war  can,  in  so  far  as  it 
depends  on  economic  conditions,  continue  from  year  to  year  until 
Europe  is  completely  exhausted.  Truly  a  melancholy  perspective! 
But  the  future  can  hardly  be  viewed  in  any  other  light  by  anyone 
who  objectively  strives  to  gain  a  clear  understanding  of  what  it  means 
to  say  the  war  is  to  continue  until  Germany's  economic  ruin  is 
accomplished. 

My  task  has  been  to  give  as  far  as  possible  a  correct,  but  in  any 
case  a  fully  objective,  view  of  Germany's  economic  strength  and 
ability  to  hold  out.  How  far  I  have  succeeded  will  be  judged  dif- 
ferently. I  only  wish  that  that  judgment  may  not  be  affected  by 
political  views  of  the  great  struggle  or  by  a  sympathy  for  the  one  or 
other  side.  Indeed  there  is  after  all  no  necessity  why  a  political  point 
of  view  should  enter  when  we  are  considering  a  question  like  the 
present.  The  task  I  have  attempted  is  essentially  of  a  neutral  nature 
— this  point  I  would  again  emphasize.  It  should  be  of  at  least  equal 
interest  to  Germany's  opponents  as  to  Germany  herself  to  obtain  an 
objective  statement  of  her  economic  position.  I  am  prepared  to  find 
that  anti-Germans  of  the  kind  that  cannot  abandon  ingrained  political 
bias  will  consider  my  statements  too  favorable  for  Germany  and  will 
accuse  me  of  lack  of  objectivity.  This  does  not  worry  me.  But  I 
venture  to  hope  that  men  in  responsible  positions  on  the  Entente  side 
may  find  my  conclusions  worthy  of  consideration.  They  may  perhaps 


RESOURCES  OF  THE  BELLIGERENTS  163 

think  that  my  estimate  of  Germany's  economic  strength  requires 
some  modification.  But  from  their  point  of  view  a  most  important 
thing  is  not  to  make  any  mistake  in  the  opposite  direction.  No 
impartial  observer,  and  hardly  any  of  the  leading  men  of  the  Entente 
themselves,  would  deny  that  they  have  from  the  beginning  under- 
estimated the  economic  strength  of  their  opponent.  This  mistake 
should  not  be  continued.  If  the  war  is  to  go  on  indefinitely  one  should 
make  sure  that  one  understands  fully  what  has  to  be  faced. 

I  can  imagine  that  Germany's  opponents  argue  thus:  "Next 
summer,  autumn,  Christmas,  or  at  any  rate  in  a  year,  Germany's 
economic  resources  must  be  exhausted;  having  made  such  sacrifices 
for  the  war,  we  must  try  to  hold  out  for  the  comparatively  short 
period  it  may  still  last."  It  would  be  disastrous  if  such  arguments 
should  prevail  any  longer,  for  they  are  absolutely  wrong.  But  I  am 
not  discussing  military  prospects,  which  I  am  not  competent  to  judge. 
But  assuming  that  the  military  position  remained  about  stationary, 
the  economic  position  will  not,  as  far  as  I  can  see,  offer  any  reason 
for  concessions  on  the  part  of  Germany.  In  three,  six,  or  twelve 
months  Germany's  economic  strength  will  essentially  and  from  the 
point  of  view  of  continuing  the  war  be  about  the  same  as  now.  I  have 
probably  had  better  opportunities  of  forming  an  opinion  on  this  point 
than  the  statesmen  of  the  Entente  and  have  been  able  to  do  so  under 
more  undisturbed  conditions  than  they. 


V 

THE   PROBLEM  OF  INDUSTRIAL  MOBILIZATION 

Introduction 

The  chapter  on  the  "Nature  of  Modern  War"  made  it  clear 
that  a  world-war  is  not  merely  a  conflict  of  armies;  that  it  is  rather 
a  titanic  struggle  between  rival  economic  organizations.  The 
mobilization  of  a  nation's  industries  is  therefore  of  equal  importance 
with  the  mobilization  of  armies.  Indeed,  mobilization  of  the  military 
forces  and  mobilization  of  the  industrial  forces  are  inseparably  linked 
and  must  be  viewed  as  a  single  problem.  This  basic  fact  was  not 
realized  by  all  the  belligerents  at  the  outbreak  of  hostilities;  and  the 
human  and  material  losses  sustained  before  this  conception  of  the 
ultimate  requirements  of  war  was  arrived  at  have  been  almost 
incalculable. 

Those  who  had  been  studying  the  problem,  with  the  experience 
of  Europe  as  a  guide  (Section  XVI),  had  gained,  before  April,  1917, 
some  comprehension  of  the  nature  of  the  task  which  would  confront 
the  United  States  in  the  event  that  we  should  be  drawn  into  the 
struggle.  But  although  warnings  were  early  issued  as  to  the  readjust- 
ments that  would  be  required  of  American  business,  it  is  significant 
that  there  was  a  year  of  floundering  before  American  business  men 
as  a  whole,  and  even  before  governmental  agencies  as  a  whole,  reached 
a  clear  understanding  of  what  was  required  in  the  way  of  industrial 
reorganization.  The  notion  that  money  would  enable  us  to  buy 
goods  somehow  and  somewhere  was  perhaps  the  greatest  obstacle 
in  the  way  of  a  realization  of  the  true  nature  of  the  problem.  If  any 
given  individual  has  placed  in  his  hands  a  large  amount  of  money,  he 
can  of  course  buy  whatever  he  desires.  Why  then  could  not  the 
nation  with  unlimited  funds  at  its  disposal  forthwith  purchase  the 
unlimited  quantities  of  supplies  required  ?  Thus  was  the  individual 
viewpoint  read  into  a  national  situation,  to  which  it  could  apply  only 
under  conditions  where  there  was  a  large  neutral  world  standing  ready 
to  furnish  us  with  all  the  supplies  required.  Not  until  the  individual 
pecuniary  concept  could  be  replaced  by  the  concept  of  national 
production  of  goods  could  real  progress  in  industrial  mobilization  be 
made. 

164 


PROBLEM  OF  INDUSTRIAL  MOBILIZATION  165 

There  are  numerous  methods  of  mobilizing  a  nation's  industries 
(Section  XVII).  They  are  not  mutually  exclusive,  but  neither  are 
they  coequal  in  effectiveness.  More  and  more  in  the  experience  of 
all  the  belligerents,  pure  voluntary  methods  have  been  found  to  be 
both  slow  and  unscientific — that  is,  dependent  upon  the  psychological 
reactions  of  individual  business  managers  and  laborers  rather  than 
based  upon  a  careful  analysis  of  the  complex  requirements  of  the 
situation  in  its  entirety. 

In  Section  XVIII  we  find  authoritative  statements  of  the  experi- 
ences through  which  the  various  European  belligerents  have  passed. 
The  contrast  between  France  and  England  is  striking  enough  and  is 
indicative  of  the  effect  that  invasion  of  a  nation's  territory  may  have 
in  hastening  the  individual  sacrifices  and  industrial  readjustments 
that  are  required.  But  the  contrast  between  Germany  and  Russia 
is  even  more  striking.  Germany's  mobilization  of  national  resources, 
as  related  by  her  own  officials  in  charge  thereof,  reveals  a  clear  under- 
standing of  the  basic  requirements  of  war,  of  the  necessity  of  a  close 
union  of  economic  and  military  strategy,  and  of  the  correlation  of 
military  a.nd  industrial  activities,  involving  every  aspect  of  national 
life.  Particularly  significant  is  the  German  "organization  for 
victory"  (Section  XVIII,  3,  C)  at  the  beginning  of  the  third  year  of 
the  war.  The  spectacle  of  Germany  already  clearly  perceiving  the 
impending  collapse  (economic,  if  not  political)  of  Russia  and  with- 
drawing to  a  "Siegfried  line"  where  defense  on  the  west  front  would 
be  relatively  easy,  and  then  for  many  months  devoting  every  energy 
to  the  production  of  basic  raw  materials  in  hitherto  undreamed  of 
quantities  in  order  to  lay  the  foundation  for  an  eventual  output  of 
munitions  and  supplies  that  would  insure  the  materials  for  victory,  is 
without  a  parallel.  The  marvel  only  is  that  she  did  not  have  the 
diplomatic  astuteness  to  pacify  America  for  yet  a  few  more  months; 
for  delay  on  our  part  for  another  half-year  might  well  have  sealed 
the  fate  of  Europe. 

The  old  regime  in  Russia,  on  the  other  hand,  never  understood  the 
dependence  of  war  upon  economic  organization.  Neglect  of  the 
economic  side  of  war  had  virtually  destroyed  the  power  of  Russia 
even  before  the  revolution  had  wrought  its  spiritual  decimation  of  the 
Russian  forces.  Russia  was  obviously  defeated  before  the  revolution 
of  1917 — defeated  while  it  still  maintained  in  the  field  the  largest 
national  army  known  to  the  annals  of  warfare.  And  who  can  say 
that  lack  of  the  basic  necessities  for  existence  on  the  part  of  the 


1 66  ECONOMICS  OF  WAR 

masses,  while  the  trading  and  privileged  classes  reaped  war  profits 
uncontrolled,  may  not  have  been  an  instrumental  factor  in  the  decline 
in  Russian  morale  and  in  the  eventuation  of  social  and  economic  chaos 
in  that  unhappy  land  ? 

XVI.    The  Nature  of  the  Problem 
i.     CONVERSION  OF  INDUSTRIES  TO  WAR  PRODUCTION1 

If  there  should  be  an  open  break  between  the  United  States  and  a 
first-class  foreign  power,  taking  form  in  a  declaration  of  war  and  calling 
for  the  raising  of  an  adequate  military  and  naval  force,  back  of  the 
federal  machinery  of  the  War  and  Navy  departments  there  must  be  a 
quick  mobilization  of  the  industries  of  the  nation  to  meet  the  increased 
demands  for  munitions  and  other  supplies  for  the  fighting  forces. 
The  survey  of  the  industries  of  the  country  has  been  made,  manu- 
facturers are  anxious  to  cooperate  in  meeting  the  governmental  needs, 
but  the  great  and  immediate  step  must  be  to  show  them  how  to 
proceed.  This  must  be  a  process  of  education  and  it  can  not  be  a 
quick  process.  It  takes  time  to  convert  a  factory  used  for  the  manu- 
facture of  products  of  peace  into  an  ammunition  plant.  The  plants 
may  be  had  in  a  hurry — many  have  been  offered  in  advance  of  an 
open  break — but  the  great  task  of  mobilization  will  be  to  get  them 
running  in  new  grooves. 

A  close  observation  of  the  experience  in  foreign  countries  has  shown 
us  the  vital  necessity  for  a  peace-time  prearrangement  for  conversion 
in  all  industries.  Wars,  as  now  waged,  involve  every  human  and 
material  resource  of  a  belligerent  nation.  Every  factory  and  every 
man,  woman,  and  child  are  affected.  Every  sinew  of  industry,  of 
transportation,  and  of  finance  must  be  harnessed  in  the  country's 
service.  In  England  two  years  and  a  half  ago  there  were  three  govern- 
ment arsenals.  Today  thousands  of  England's  industrial  plants  are 
being  operated  as  government  factories  for  the  production  of  war 
materials,  and  many  other  thousands  of  plants,  still  under  private 
control,  are  centering  their  energies  in  this  same  direction.  The 
teaching  of  the  munition-making  art  to  these  thousands  of  manu- 
facturers and  to  millions  of  industrial  workers,  both  men  and  women, 

'By  Howard  Earle  Coffin.  Adapted  from  "Mobilizing  Our  Industries," 
Independent,  LXXXIX  (February  19,  1917),  304. 

ED.  NOTE. — It  will  be  noted  from  the  date  of  this  reference  that  this  article 
was  written  by  Mr.  Coffin  two  months  before  the  United  States  entered  the  war. 
Mr.  Coffin  was  at  the  time  Chairman  of  the  Committee  on  Industrial  Preparedness. 


PROBLEM  OF  INDUSTRIAL  MOBILIZATION  167 

has  called  for  a  work  in  industrial  organization  and  education  such  as 
the  world  has  never  before  seen. 

We  have  here  in  the  United  States  vast  resources  in  manufacturing 
and  producing  equipment,  but  they  are  unorganized  and  uneducated 
for  the  national  service.  Our  observations  of  the  European  war  have 
taught  us  that  it  is  upon  organized  industry  that  we  must  base  every 
plan  of  military  defense.  In  the  event  of  trouble  with  any  one  of  the 
several  first-class  powers,  between  80  and  90  per  cent  of  our  industrial 
activity  would  of  necessity  be  centered  upon  the  making  of  supplies 
for  the  government.  We  have  learned  also  that  from  one  to  two  years 
of  time  and  of  conscientious  effort  are  needed  to  permit  any  large 
manufacturing  establishment  to  change  over  from  its  usual  peace- 
time commercial  line  to  the  quantity  production  of  war  materials 
for  which  it  has  had  no  previous  training. 

We  have  had  no  experience  in  the  kind  of  warfare  now  being  waged 
abroad,  and  yet  this  is  exactly  the  sort  of  thing  for  which  we  must 
prepare,  or  immediately  enter  upon  if  war  should  now  be  declared, 
or  it  is  worse  than  useless  that  we  prepare  at  all.  We  have  the 
investments  in  plants,  in  tools,  and  in  machinery,  and  more  important 
still  are  our  resources  in  skilled  workers.  But  it  is  only  through  the 
most  careful  methods  of  organization  and  education  in  time  of  peace 
that  we  may  make  all  these  resources  available  in  time  of  emergency. 

Each  manufacturing  plant  must  be  taught  how  to  make  that 
particular  part  or  thing  for  which  its  equipment  is  best  suited.  It 
may  be  that  that  education  must  start  at  once  to  meet  actual  and 
present  pressing  demands,  but  in  any  event  annual  educational  orders 
of  war  materials  of  such  small  size  as  not  to  interfere  with  com- 
mercial products,  must  be  made  and  delivered  each  year  under 
government  inspection  if  our  plants  and  workers  are  to  be  ready  in 
case  of  need.  Skilled  labor  in  every  line  must  be  so  enrolled  as  to 
ensure  against  its  loss  to  industry  through  enlistment  in  the.  fighting 
forces.  There  exists  no  other  means  of  harnessing  industry  in  the 
defensive  service  of  the  government. 

We  must  nationalize  the  munitions  industry  politically.  Each 
community  and  each  political  district  will  have  its  share  of  government 
responsibility  and  expenditure  in  this  work.  To  each  community 
will  be  brought  home  the  part  it  must  play  in  the  event  of  national 
emergency.  We  have  long  known  that  we  must  nationalize  geographi- 
cally the  munition-making  art  and  that  to  leave  it  centered  near  our 
east  coast  would  be  suicidal. 


1 68  ECONOMICS  OF  WAR 

There  is  no  mystery  in  the  job  of  preparing  the  country  for 
defense.  Through  too  much  secrecy  we  deceive,  and  can  deceive, 
the  American  people  only.  Manufacturers  should  have  been, looking 
their  part  in  the  national  scheme  of  things  military  squarely  in  the  face 
months  ago.  Their  vital  interests  both  commercial  and  national 
require  that  each  shall  know  how  to  do  his  "bit"  in  time  of  need.  If 
in  the  present  situation  any  manufacturer  can  have  the  idea  that  he 
may  sit  in  security  with  folded  hands  because  Congress  has  voted 
battleships  and  a  meagre  increase  in  the  standing  army,  he  needs  to 
consult  a  brain  specialist.  There  are  in  war,  as  in  peace,  three  Graces, 
and  their  names  are  "Army,  Navy,  and  Industry" — and  the  greatest 
of  these  is  Industry.  The  European  war  is,  in  its  last  analysis,  a  war 
of  munitions — a  war  of  factories,  of  producing  powers,  and  of  sweat- 
ing men  and  women  workers. 

2.    THE  FUNDAMENTAL  REQUIREMENTS  OF  WAR1 

Four  things,  in  the  main,  are  required  of  the  United  States  in  the 
next  year: 

1.  Ships — as  many  as  can  be  built. 

2.  Munitions  and  materials  of  war — as  much  as  can  be  supplied. 

3.  Food — as  much  as  can  be  produced. 

4.  Soldiers— as  many  as  can  be  trained. 

Numerous  subclassifications  might  be  made  here,  but  this  simple 
statement  of  needs  will  most  effectively  serve  our  present  purpose. 
The  problem  that  is  before  us  in  supplying  the  unlimited  quantities 
of  ships,  munitions  and  materials,  food,  and  soldiers  that  are  required 
may  be  made  clear  by  a  simple  diagrammatic  statement: 

i.  Indispensable  goods: 

a)  Prime  necessities  for  physical  and  mental  effi- 
ciency 

b)  Replacement  of  capital  goods  used  in  producing 


50,000,000  workers1 
ordinarily  pro- 
duce 


such  necessities 

c)  New  capital  goods  used  in  producing  necessities 
Dispensable  goods: 


a)  Luxuries  and  many  conventional  necessities 

b)  Replacement  of  capital  goods  used  in  producing 
these  dispensable  commodities 

c)  New  capital  goods 

xBy  Harold  G.  Moulton.  From  "Industrial  Conscription,"  Journal  of 
Political  Economy,  November,  1917.  Delivered  as  an  address  before  the  Western 
Economic  Society  and  the  City  Club  of  Chicago,  June  21,  1917. 

3 1  assume  50,000,000  workers;  there  may  be  more  or  less,  but  the  exact  number 
is  quite  immaterial.  Call  it  x  workers  if  you  prefer. 


PROBLEM  OF  INDUSTRIAL  MOBILIZATION  169 

If  we  place  one  million  men  in  the  army  the  number  of  industrial 
workers  this  year  will  be  reduced  to  49,000,000.  This  loss  of  numbers 
may,  however,  substantially  be  made  good  by  impressing  into  the 
industrial  ranks  those  who  are  normally  not  employed.  In  order 
to  be  conservative  let  us  assume  that  we  have  the  same  working  force 
this  year  as  last.  What  now  are  the  alternatives  before  us  ? 

1.  Produce  none  or  few  of  the  indispensable  war  supplies  that  the 
situation  requires. 

2.  Speed  up  the  workers  and  increase  efficiency  to  a  point  where 
they  can  produce,  not  only  the  customary  amounts  of  both  classes  of 
goods,  the  dispensables  and  the  indispensables,  but  in  addition  the 
unlimited  quantities  of  ships,  munitions,  materials,  and  food  required 
for  the  war. 

3.  Produce  less  of  the  things  normally  produced — the  dispensables 
— and  transfer  our  national  energy  into  the  production  of  the  indis- 
pensable sinews  of  war. 

I  take  it  that  it  will  be  at  once  conceded  that  the  first  alternative 
is  out  of  the  question;  it  stands  as  an  admission  of  failure. 

The  second  alternative  is  regarded  by  many  as  adequate,  or 
substantially  adequate,  to  the  task  before  us.  We  are  said  to  be  a 
big,  rich,  powerful  country  that  can  do  anything  once  we  have  buckled 
to  the  task  with  characteristic  American  energy  and  ingenuity.  "We 
will  get  there  somehow."  Now  while  we  can  doubtless  speed  up 
somewhat,  we  cannot  by  that  means  produce  more  than  a  fraction  of 
the  munitions,  ships,  and  food  required.  For  it  must  be  observed 
that  the  speeding  up  of  workers  in  present  lines  of  production  will 
merely  give  us  additional  quantities  of  the  things  normally  produced, 
luxuries  and  other  dispensables,  along  with  the  things  that  are  indis- 
pensable. In  so  far  as  we  are  at  present  engaged  in  producing  food, 
ships,  and  war  materials,  speeding  up  will  help.  But  it  will  scarcely 
begin  to  solve  the  problem.  At  best  it  will  give  us  a  little  more  of  the 
indispensables  required  for  war. 

There  is  also  much  current  discussion  of  the  wonderful  gains  that 
may  be  made  through  increasing  efficiency.  It  is  argued  that  we 
should  make  our  patriotic  impulses  the  occasion  for  the  universal 
introduction  of  scientific  management.  It  of  course  goes  without 
saying  that  we  should  do  all  that  we  possibly  can  to  further  the 
improvement  of  industrial  methods;  and  doubtless  something  may 
be  accomplished.  But  it  must  be  remembered:  first,  that  increased 
efficiency  will  be  of  importance  only  in  so  far  as  it  results  in  the 
production  of  the  indispensable  commodities;  secondly,  that  a  time 


1 70  ECONOMICS  OF  WAR 

of  speeding  up  and  of  reorganization  and  dislocation  in  industry  is 
not  a  favorable  time  for  experimentation  with  industrial  methods; 
thirdly,  that  the  number  of  trained  men  available  for  the  introduction 
of  scientific  management  is  very  limited,  and  that,  in  any  event, 
business  managers,  under  the  spur  of  private  gain,  have  been  endeavor- 
ing to  improve  their  methods  as  fast  as  possible;  and,  fourthly,  that 
while  it  is  as  easy  to  make  good  resolutions  hi  a  time  of  national  crisis 
as  it  is  in  a  revival  meeting,  it  is  unfortunately  just  about  as  easy  to 
linger  on  with  accustomed  methods  of  business  as  to  persist  in  habitual 
modes  of  conduct.  It  would  seem,  therefore,  that  we  cannot  expect 
too  much  from  the  improvement  of  business  processes.  Perhaps 
we  may  reasonably  count  upon  a  substantial  increase  in  efficiency  to 
be  one  of  the  ultimate  effects  of  the  war;  but  our  problem  now  is 
immediate,  not  ultimate.  The  time  available  is  a  matter  of  months 
rather  than  of  years. 

At  this  point  it  should  be  emphasized  that  the  position  of  the 
United  States  is  unique,  so  far  as  the  allied  nations  are  concerned. 
England,  for  instance,  at  the  outbreak  of  the  conflict  could  import 
vast  quantities  of  munitions  and  supplies  from  other  countries.1 
England,  therefore,  had  a  fourth  alternative,  one  denied  to  us  because 
the  struggle  is  now  world-wide.  All  of  the  materials  of  war  that  we 
furnish  must  come  from  the  current  energy  of  our  own  people.  We 
must  ourselves  produce  these  ships,  munitions,  food  supplies,  and 
stocks  in  the  coming  months.  There  is  no  one  else  to  do  it  for  us. 
In  this  connection  I  should  like  to  emphasize  with  all  the  power  at 
my  command  the  argument  that  we  cannot  by  bond  issues  shift  the 
burdens  of  this  war  to  future  generations.  The  mere  fact  that  all  of 
us — as  represented  by  the  government — borrow  from  some  of  us — 
as  represented  by  bond  purchasers — does  not  change  the  other  essen- 
tial fact  that  we,  the  people  within  this  country,  must  actually  produce 
practically  all  the  war  materials  we  are  to  have  for  use  in  the  war. 

It  would  seem  to  follow  from  the  foregoing  analysis  that  the  third 
is  the  only  alternative  open  to  us;  and  this  inevitably  means  that 
labor  and  capital — human  energy,  if  you  please — must  be  shifted 
from  the  places  that  do  not  count  to  the  places  that  do  count  in  the 
task  we  are  undertaking.  It  means  that  capital  and  labor  now  being 
employed  in  building  machinery,  factories,  etc.,  that  are  not  required 

1  Imports  have  been  paid  for  by  England  in  three  ways:  first,  by  exporting 
gold  ($1,400,000,000);  second,  by  reselling  securities  ($2,000,000,000);  third,  with 
credit  ($2,000,000,000). 


PROBLEM  OF  INDUSTRIAL  MOBILIZATION  171 

for  war  purposes  must  be  transferred  to  the  construction  of  factories 
and  workshops  that  can  be  used  in  manufacturing  munitions  and 
materials  of  war;  it  means  that  factories  already  built  that  are  now 
being  used  for  the  manufacture  of  dispensable  commodities,  luxuries, 
etc.,  must  be  (where  possible)  made  over  into  factories  that  can 
manufacture  indispensables;  it  means  that  where  these  factories 
cannot  be  remodeled  for  war  purposes  they  must  be  closed,  and  the 
laborers,  at  least,  released  for  service  that  counts. 

We  have  been  discussing  the  need  of  curtailing  luxuries  in  order1 
that  additional  war  supplies  may  be  produced.  It  remains  to  con- 
sider the  relation  of  a  curtailment  of  luxuries  to  an  increased  produc- 
tion of  necessities.  We  have  all  been  urged  to  economize  with  certain 
forms  of  food  in  order  that  more  may  be  left  for  shipment  to  our 
Allies.  The  food  problem,  however,  goes  much  deeper  than  con- 
serving the  use  of  an  existing  stock  of  foodstuffs.  The  real  food 
problem  is  how  to  secure  a  supply  of  food  large  enough  to  meet  the 
continuous  requirements  of  this  nation  and  our  Allies.  This  is  more 
a  question  of  production  than  of  consumption,  that  is  to  say,  conserva- 
tion in  consumption  is  less  important  than  large  production. 

Why  is  it  that  the  food  supply  of  the  allied  nations  is  short? 
It  is  mainly  because  of  the  diversion  of  man  power  from  agricultural 
to  war  pursuits.  To  overcome  this  shortage  in  agricultural  pro- 
duction additional  labor  must  be  found  for  agriculture,  and  this  labor 
can  come  only  through  a  release  of  those  engaged  in  less  essential  lines 
of  production.  In  other  words,  it  is  imperative  that  less  essential 
lines  of  production  be  eliminated,  not  only  to  the  end  that  the  muni- 
tions and  materials  necessary  for  fighting  may  be  abundant,  but  in 
order  that  the  armies  of  the  allied  nations  may  be  adequately  fed  and 
that  the  civilian  population  may  have  sufficient  food  to  sustain 
themselves  in  a  state  of  physical  efficiency  for  the  work  that  must 
be  done  behind  the  lines.  This  applies  not  merely  to  the  production 
of  food;  it  applies  equally  to  the  other  fundamental  necessities  of 
life. 

As  an  ever-increasing  percentage  of  our  man  power  is  drawn 
overseas,  the  problem  of  producing  adequate  amounts  of  essentials 
becomes  increasingly  severe.  There  is  no  possible  escape  from  a 
substantial  shortage  of  the  necessities  of  life  other  than  through  a 

1  The  following  is  from  The  Duty  of  the  Consumer  in  War  Time,  a  pamphlet 
distributed  by  the  Union  League  Club  of  Chicago,  August,  1918. 


172  ECONOMICS  OF  WAR 

diversion  of  productive  energy  from  the  nonessential  to  the  essential 
industries. 

It  is  not  usually  understood  that  the  chief  cause  of  the  enor- 
mously high  prices  of  the  necessities  of  life  at  the  present  time  is  their 
relative  scarcity.  The  supply  of  necessities  in  this  country  has  not 
materially  increased,  but  the  demand  for  them,  owing  to  the  require- 
ments of  our  Allies,  has  enormously  increased.  We  can  prevent  a 
still  further  soaring  of  prices  only  by  increased  production  of  neces- 
sities— increased  production  to  be  accomplished,  let  it  be  repeated, 
through  a  diversion  of  productive  power  from  the  nonessential  lines. 

The  wealthy  have  often  been  urged  since  the  war  started  to  spend 
lavishly  on  luxuries  and  to  economize  on  necessities  in  order  that  the 
necessities  will  remain  for  consumption  by  the  poor.  This  is  sheer 
shortsightedness;  for  the  energy  devoted  to  the  production  of  luxuries 
for  consumption  by  the  wealthy  would,  if  diverted  to  the  production 
of  essentials,  give  us  a  sufficient  supply  of  the  necessities  of  life  that 
all  might  have  them  in  relative  abundance.  The  result  of  a  policy 
of  spending  lavishly  on  luxuries  is  an  inadequate  production  of 
necessities  and  hence  prices  so  high  as  to  cause  real  privation  among 
the  masses.  Those  engaged  in  producing  luxuries  obviously  cannot 
at  the  same  time  be  engaged  in  producing  necessities. 

The  importance  of  maintaining  an  adequate  production  of  the 
necessities  of  life  and  of  preventing  an  enormous  rise  of  prices  cannot 
be  too  strongly  emphasized.  In  a  war  of  attrition  such  as  this, 
physical  deterioration  of  the  masses  of  society  in  consequence  of 
inadequate  nourishment  results  in  a  serious  decline  in  national  morale 
— and  this  is  a  decisive  factor  in  the  final  outcome  of  the  struggle. 
Food  and  other  physical  necessities  will  win  the  war.  We  must  therefore 
not  only  conserve  food  and  other  necessities,  but,  more  important, 
we  must  insure  ample  production  of  them  through  a  lessening  of  the 
production  of  nonessentials. 

3.    THE  SIZE  OF  THE  JOB1 

This  war  is  the  biggest  job  America  ever  faced,  or  is  ever  likely  to 
face.  It  is  a  job  so  big  that  none  of  us  has  walked  around  and  meas- 

1  By  Frank  A.  Vanderlip.  Adapted  from  an  address  entitled  "How  to  Win 
the  War,"  delivered  before  the  Business  Men's  Association  of  Minneapolis,  Minn., 
in  December,  1917. 

ED.  NOTE. — Mr.  Vanderlip,  president  of  the  National  City  Bank  of  New  York, 
is  chairman  of  the  National  War  Savings  Committee. 


PROBLEM  OF  INDUSTRIAL  MOBILIZATION  173 

ured  it.  We  have  only  got  some  little  views  of  the  mountain  that  is 
ahead  of  us.  We  are  just  beginning  to  understand  what  it  means 
to  go  to  war  in  the  modern  sense  and  what  it  means  to  prepare  America 
for  war. 

We  knew  we  were  unprepared.  I  don't  know  whether  we  knew 
how  thoroughly  unprepared  we  were.  Our  unpreparedness  was 
complete.  But  when  we  come  to  make  an  inventory  of  what  is 
necessary;  when  we  come  to  understand  what  a  gigantic  task  it  is 
to  equip  an  army;  when  we  come  to  know  something  about  modern 
warfare  and  understand  that  it  is  a  matter  of  equipment  as  much  as 
it  is  of  men ;  then  we  begin  to  see  something  of  the  size  of  this  under- 
taking. 

We  are  apt  to  measure  things  with  the  yardstick  of  the  dollar — 
this  money  value  of  things.  We  have  seen  Congress  appropriate  for 
expenditure  this  fiscal  year  nineteen  billion  dollars.  Do  you  know 
what  a  billion  dollars  is  ?  I  don't.  I  have  been  used  to  handling 
million  dollar  units  a  good  deal.  We  know  what  a  million  dollars  is 
pretty  well.  We  can  picture  what  sort  of  a  building,  how  much  of  a 
shop,  what  kind  of  a  store  a  million  dollars  represents.  But  we 
cannot  as  yet  adequately  measure  a  billion  dollars.  And  we  are  to 
raise  $19,000,000,000.  Nineteen  billion  dollars!  It  would  make  a 
ring  of  twenty-dollar  gold  pieces  around  the  Equator,  one  lying  next 
to  the  other.  It  is  three  times  all  the  money  there  is  in  the  United 
States.  Every  dollar  that  this  government  has  spent  from  its  foun- 
dation, down  through  all  the  wars,  through  all  the  days  of  peace,  all 
it  has  spent  for  pensions,  for  the  Panama  Canal,  for  constructing 
public  buildings — every  expenditure  that  it  has  made  from  the  first 
days  of  Alexander  Hamilton  in  the  Treasury  down  to  the  beginning 
of  this  fiscal  year — foots  twenty-six  billion  three  hundred  million, 
and  now  we  are  going  to  spend  nineteen  billion  dollars  in  a  year! 
The  value  of  all  the  railroads  in  the  country — tracks,  terminals, 
equipment,  locomotives,  cars,  everything — is  less  than  nineteen 
billion  dollars.  What  would  you  think  if  we  had  to  reproduce  the 
railroad  system  of  America  in  a  year  ?  It  would  be  something  of  a 
job,  wouldn't  it  ? 

.  This  brings  us  to  the  question :  What  can  organized  industry  do  ? 
How  big  is  the  industrial  plant  of  this  country  ?  Three  years  ago,  the 
year  the  great  war  began,  the  Census  Department  undertook  to  find 
out  just  what  the  value  of  the  manufactured  products  of  America  was, 
and  they  found  that  they  were  worth  for  that  year  $24,300,000,000. 


174  ECONOMICS  OF  WAR 

This  year  they  would  be  worth  a  good  deal  more.  We  have 
grown;  we  have  expanded  our  industries;  we  are  working  harder; 
more  men  are  at  work;  prices  are  higher.  But  suppose  that  figure 
is  $30,000,000,000  or  $35,000,000,000.  Put  in  juxtaposition  with 
whatever  figure  you  may  set  as  the  capacity  of  the  workshops  this 
demand  for  $19,000,000,000  worth  of  things,  and  what  will  your 
conclusion  be  ?  It  will  be  that  the  government  is  going  to  fail  to  do 
its  job,  or  you  and  I  are  going  to  call  on  the  workshops  for  less  than 
we  have  been  calling  upon  them  for. 

That  is  no  theory;  it  is  the  inevitable  conclusion  from  two  facts: 
our  capacity  and  this  demand.  If  we  are  going  to  continue  to  call  on 
labor,  to  call  on  the  supply  of  raw  material,  to  take  up  shop  room,  to 
make  those  things  that  we  have  been  in  the  habit  of  asking  for;  if 
we  are  going  to  continue  to  demand  the  things  of  luxury,  of  comfort, 
of  convenience  that  we  have  been  in  the  habit  of  demanding,  the 
government  is  going  to  fail  to  do  this  job,  and  you  and  I  are  going  to 
paralyze  the  blow  when  the  government  comes  to  strike  it,  because  it 
will  not  have  equipped  this  army;  it  will  not  have  equipped  it  as  it 
should. 

Now  that  view  makes  the  thing  pretty  personal.  It  begins  to  show 
us  that  we  have  some  relation  to  this  job;  that  the  government  is  not 
a  thing  apart  that  votes  war,  that  sells  bonds,  and  that  fights  the 
battle  out.  This  is  a  democracy.  We  are  part  of  that  government, 
and  never  before  was  it  so  clear  that  the  responsibilities  of  citizenship 
come  directly  to  us  and  demand  of  us  sacrifice;  demand  of  us  that 
we  so  handle  our  personal  affairs  that  we  do  not  get  in  the  way  of  the 
government;  that  we  do  not  become  competitors  with  the  govern- 
ment for  those  things  that  the  government  must  have. 

We  must  think  constantly  what  is  the  government's  job;  we  must 
recognize  how  big  that  job  is,  how  enormous  it  is  compared  with  the 
capacity  of  our  workshops.  We  want  to  build  a  billion  dollars' 
worth  of  aeroplanes.  We  want  to  spend  two  billion  dollars  on  ships. 
We  have  appropriated  one  billion  eight  hundred  millions  for  ammuni- 
tion. Why,  in  this  war,  which  will  be  one  in  which  the  transportation 
is  done  in  the  main  by  automobile  trucks,  we  have  ordered  136,000 
horse-drawn  vehicles.  That  would  make  a  procession  eight  hundred 
miles  long.  All  this  gives  just  a  little  glimpse  of  the  endless  things  we 
have  to  do.  It  gives  us  a  little  conception  of  the  draft  we  are  going 
to  make  upon  man  power,  upon  raw  materials,  upon  the  workshops, 
upon  the  organized  industry  of  the  country. 


PROBLEM  OF  INDUSTRIAL  MOBILIZATION  175 

4.    THE  DIVERSION  OF  ENERGY  REQUIRED1 

All  the  great  problems  of  supply — man  power,  coal,  ships,  food, 
and  what  not — can  find  a  genuine  solution  only  in  a  consciously 
formulated  policy  of  diversion.  Despite  the  conclusive  proof  which 
England  and  France  have  alike  offered,  that  war,  which  is  the  most 
unusual  of  all  businesses,  can  be  carried  on  only  if  its  requirements 
are  made  the  dominant  end  of  the  industrial  process,  some  well- 
meaning  individuals  still  persist  in  the  notion  that  business  may  be 
carried  on  as  usual.  They  seem  to  think  that  in  addition  to  the  large 
and  conglomerate  volume  of  the  good  things  of  life  which  will  allow 
luxury  as  usual  and  pleasure  as  usual,  an  additional  supply  can  in 
some  magical  way  be  conjured  up  to  meet  the  requirements  of  the 
armed  forces.  It  is  argued  that  the  stimulus  of  war  enables  the 
productive  system  to  increase  its  output  by  taking  up  the  "slack." 
In  support  of  their  belief  perhaps  it  can  be  said  that  there  have  long 
been,  and  still  exist,  abundant  opportunities  of  increasing  production 
by  the  use  of  new  lands,  new  technique,  new  organization,  new 
governmental  supervision,  and  the  added  labor  of  those  who  once  lived 
in  idleness.  While  it  must  be  admitted  that  war  has  taught  the  people 
of  Europe  many  things  about  efficiency  which  five  years  ago  seemed 
beyond  their  grasp,  it  has  given  no  evidence  of  being  able  to  add  to  the 
ordinary  total  production  materials  of  war  which  constitute  fully  a 
35  per  cent  addition  to  the  volume  of  goods  turned  out. 

Most  of  slack  in  our  industrial  system  was  taken  up  by  the  imme- 
diate stimulus  of  the  European  war  in  1914  and  1915.  It  must  also 
be  remembered  that  efficiency  comes  only  with  the  adaptation  of  the 
system  to  its  new  ends  and  cannot  become  very  manifest  until  this 
process  is  well  under  way.  Our  recent  experiences  in  the  production 
of  aircraft  and  ships,  although  based  upon  sound  enough  business 
principles  as  applied  to  peace  conditions,  can  be  characterized  as 
dismal  industrial  failures.  They  are  evidence  of  the  waste  which  is 
a  persistent,  perhaps  an  inevitable,  accompaniment  of  an  entrance 
into  large-scale  warfare  by  a  nation  of  amateurs  in  knowledge  of 
industrial  society.  The  experimentation  which  is  necessary  to  learn- 
ing how  to  do  the  great  tasks  of  war  carries  with  it  many  such  wastes. 
Many  other  wastes  incident  to  the  withdrawal  of  men  and  materials 
from  industry  have  been  recounted  in  the  pages  above  and  require  no 
repetition  here.  In  view  of  these  conditions  it  seems  fairly  safe  to 

'An  editorial. 


176  ECONOMICS  OF  WAR 

say  that  war  decreases  rather  than  increases  the  total  output  of  a 
nation.  Certainly  there  is  little  evidence  for  a  belief  in  a  rising  total 
output  in  a  nation  in  which  the  industrial  system  has  been  organized 
to  respond  to  public  demand  through  the  agency  of  a  scheme  of  prices. 
But  even  if,  in  spite  of  losses  and  disorganization,  production  is  to 
increase,  this  can  come  only  after  an  adjustment  to  the  new  conditions 
is  complete,  and  even  then  it  promises  at  most  an  addition  of  only  a 
small  part  to  the  total  product  of  the  country  out  of  which  must  come 
the  great  supplies  of  a  modern  belligerent  enterprise. 

The  general  surplus  of  supplies  which  a  civilian  population  must 
produce  over  and  above  its  requirements,  of  which  the  food  surplus 
is  a  single  case,  can  be  secured  only  by  a  policy  of  diversion.  Since 
the  resources  in  land,  capital,  and  labor,  under  a  given  organization 
and  technique,  are  limited  and  tend  to  be  decreased,  new  supplies 
can  be  had  only  at  the  expense  of  old  ones.  This  diversion  of  economic 
resources  to  national  purposes  may  be  either  direct  or  indirect.  It 
is  direct  when  consumers  give  up  goods  which  immediately  satisfy 
military  demands,  as  for  example  bread  which  can  be  used  to  feed 
soldiers.  It  is  less  direct  when  the  public  abstains  from  purchasing 
an  article  which  cannot  be  used,  but  the  materials  out  of  which  it  is 
made  can  be  used  to  produce  a  different  article  adapted  to  war  uses. 
A  case  in  point  is  that  of  automobiles,  the  materials  of  which  can  be 
converted  into  army  trucks.  The  diversion  is  even  more  indirect  when 
it  occurs  at  an  even  earlier  stage  of  the  productive  process,  as  for 
example  when  steel  is  diverted  from  structural  uses  in  bridges  and 
skyscrapers  to  submarine  destroyers.  From  this  it  is  evident  that  at 
earlier  stages  of  the  industrial  process  the  limited  amount  of  labor, 
machines,  and  other  productive  resources  is  more  fluid,  and  therefore 
more  easily  diverted,  than  at  the  later  stages.  For  a  short  war,  to 
be  fought  upon  a  small  scale,  sufficient  materials  may  be  got  by  a 
diversion  to  war  uses  of  goods  which  are  intended  for  ordinary  con- 
sumption. For  a  longer  one  requiring  larger  operations  this  source 
will  be  insufficient,  and  it  will  be  necessary  to  go  farther  back  and 
force  unfinished  goods  into  forms  adapted  to  military  ends.  For  a 
modern  war  of  the  first  magnitude  goods  cannot  be  obtained  in  suffi- 
cient quantities  and  many  goods  cannot  be  got  at  all  unless  productive 
energy  is  diverted  to  new  uses  at  an  early  stage  of  the  productive 
process  when  it  is  still  unspecialized  and  fluid.  It  is  necessary  to  add 
that  because  our  productive  processes  are  long  ones  the  adaptation 
of  the  industrial  system  as  a  whole  to  the  demands  of  war  requires  a 
carefully  thought-out  plan  and  no  little  time  for  its  execution. 


PROBLEM  OF  INDUSTRIAL  MOBILIZATION  177 

Thus  far  we  have  relied  quite  largely  for  the  diversion  necessary 
to  an  adequate  supply  of  war  materials  upon  voluntary  effort,  while 
the  enemy  has  used  compulsion  and  definite  design  to  divert  produc- 
tive resources  to  predetermined  ends.  To  solve  our  problem  ade- 
quately productive  materials  in  their  earlier  and  more  fluid  forms 
must  by  governmental  order  be  turned  to  the  production  of  war 
materials.  In  this  case  consumption  can  be  restricted  by  the  sheer 
inability  of  consumers  to  purchase  the  unnecessary  articles  with  which 
they  have  hitherto  loaded  down  their  productive  budgets.  Failing 
such  compulsion  a  rigid  moral  effort,  directed  by  intelligence  and  not 
by  emotion  must  be  relied  upon  for  a  reduction  of  our  consumption 
of  the  comforts  and  vanities  of  life.  Tf  by  this  latter  means  their 
market  is  taken  away,  producers  will  be  forced  to  devote  their 
resources  to  national  uses. 

Thus  the  diversion  of  productive  resources  to  public  ends  requires 
of  each  of  us  a  voluntary  or  compulsory  rearrangement  of  individual 
and  household  budgets  and  radical  changes  in  the  habits  of  our  lives. 
We  must  encourage  direct  diversion  by  reducing  to  a  minimum  our 
consumption  of  articles  which  can  be  used  by  our  soldiers.  But 
it  is  even  more  important  that  we  give  up  the  consumption  of  non- 
essential  things  in  order  that  the  productive  energy  which  they  embody 
be  devoted  to  the  accomplishment  of  the  purpose  in  hand.  The 
amount  which  we  are  forced  to  give  up  or  voluntarily  surrender 
constitutes  a  surplus  over  private  consumption  that  measures  the 
extent  of  our  ability  to  wage  war.  We  are  fighting  a  nation  which 
continues  to  be  willing  to  reduce  private  consumption  to  the  barest 
subsistence  minimum.  Unless  a  large  surplus  is  produced  we  can 
gain  no  active  participation  in  war  and  cannot  hope  for  a  victorious 
peace.  The  larger  the  surplus  the  shorter  the  war  will  be,  and  the 
nearer  we  are  to  victory. 

XVII.     Methods  of  Industrial  Mobilization 
i.    VOLUNTARY  ENLISTMENT  OF  FACTORIES1 

The  most  usual  method  of  industrial  mobilization  is  by  means  of 
what  may  be  called  the  voluntary  enlistment  of  factories  in  the 
production  of  war  supplies.  This  is  induced  on  the  part  of  the 
government  by  means  of  an  offer  of  high  prices  and  large  profits. 
This  has  sometimes  been  called  the  financial  method  of  readjustment, 
because  it  involves  the  use  of  money  as  a  medium  for  effecting  the 
necessary  readjustments. 

1  By  Harold  G.  Moulton.     From  "Industrial  Conscription"  (see  p.  168). 


178  ECONOMICS  OF  WAR 

The  precise  role  that  money  plays  in  industrial  society  is  confusing 
at  all  times  to  the  economic  novice,  and  it  is  perhaps  especially  so  in 
connection  with  war.  Our  government  is  to  raise  the  first  year  of  the 
war  $19,000,000,000.  It  is  to  spend  this  vast  sum  in  inducing  people 
to  furnish  the  materials  that  are  required  for  military  operations. 
These  funds  are  to  be  passed  through  the  Treasury  Department  in 
successive  instalments,  giving  purchasing  power  while  there,  but 
passing,  in  the  act  of  purchasing,  back  again  into  the  channels  of 
industry.1  Money  then  is  the  means  by  which  the  government  is 
enabled  to  buy  the  things  it  needs. 

While  the  process  thus  far  is  perhaps  generally  enough  understood, 
it  is  usually  not  so  clear  that  if  the  commodities  required  by  the 
government  are  to  be  found  ready  on  the  market  when  they  are 
desired,  the  government  must  use  the  money  placed  in  its  hands  in 
such  a  way  as  to  induce  capital  and  labor  to  be  shifted  into  the 
production  of  the  supplies  and  materials  demanded. 

Let  us  take  some  concrete  examples.  X,  a  manufacturer  of 
automobiles,  is  offered  a  contract  by  the  government  to  produce  motor 
trucks  for  army  service.  If  the  price  offered  is  attractive,  and  if  the 
factory  can  be  easily  adapted  to  the  manufacture  of  motor  trucks,  the 
manager  will  usually  readily  accept  the  government  contract.  Here 
we  have  a  diversion  of  energy  without  great  difficulty  and  without 
having  to  pay  enormously  high  prices  to  accomplish  it.  But  let  us 
take  a  different  case.  Y  is  engaged  in  the  manufacture  of  candy,  or 
perfumery,  or  beer,  or  ceramics.  The  government  seeks  to  induce 
Y's  concern  to  manufacture  war  supplies.  To  do  so  would  require 
extensive  rehabilitation  of  plant  if  not  indeed  new  factories  altogether. 
Will  Y  change  the  character  of  his  business  ?  Purchasers  of  candy, 
perfumery,  beer,  and  ceramics  engage  in  direct  competition  with  the 
government  and  seek  to  induce  Y  to  continue  his  present  business,  by 
demanding  the  usual  output  of  such  commodities.  The  government 
must  here  greatly  outbid  private  spenders  if  it  is  to  secure  the  pro- 
duction of  war  supplies. 

In  this  connection  it  must  be  borne  in  mind  that  the  government 
is  not  a  very  effective  competitor  for  either  labor  or  capital — it  must 

1  There  is  much  apparent  mystery  as  to  how  the  government  can  raise  $19,000,- 
000,000  when  there  are  only  $5,000,000,000  in  the  country.  One  way  obviously  is 
by  having,  say,  $500,000,000  pass  through  the  Treasury  Department  38  times,  or 
once  a  week  for  38  weeks.  In  fact,  however,  actual  gold  or  actual  money  is  not 
used;  credit  instruments  in  the  form  of  checks  and  drafts  will  be  the  means  of 
making  payments. 


PROBLEM  OF  INDUSTRIAL  MOBILIZATION  179 

pay  much  higher  returns  than  normal  industry  if  it  is  to  attract  the 
requisite  production.  Why?  Because  the  laborer  does  not  usually 
feel  the  call  of  patriotism  or  the  lure  of  adventure  except  when  he 
contemplates  entering  the  active  military  establishment.  The  pecu- 
niary motive  alone  must  generally  be  looked  to  as  the  means  of  indu- 
cing him  to  enter  the  industrial  army  of  the  government.  He  will  not 
often  voluntarily  leave  his  position  and  apply  for  one  in  munitions 
factories  at  the  same  wages,  because  of  the  costs  incident  to  trans- 
ferring to  a  new  (and  often  distant)  employment,  and  because  of  the 
ephemeral  nature  of  the  demand  for  war  materials.  Very  high  wages 
are  therefore  required  if  he  is  to  be  tempted. 

Similarly,  the  government  must  pay  very  high  prices  for  the 
materials  supplied  if  the  capitalist  is  to  be  tempted  into  new  and 
uncertain  fields.  Can  he  get  efficient  laborers  for  this  work  ?  How 
high  wages  will  he  have  to  pay  ?  How  long  will  the  war  last  ?  These 
are  but  a  few  of  the  questions  the  industrial  manager  has  to  ask  and 
answer  as  best  he  may.  Generally  speaking,  he  will  assume  the 
speculative  risks  involved  if  the  financial  inducements  are  high  enough, 
but  not  otherwise. 

It  should  be  observed  in  this  connection  that  the  government's 
inducement  must  be  high  enough  to  cover  all  costs  incident  to  the 
transition  into  the  war  business,  the  losses  due  to  high  cost  of  operation 
while  engaged  in  the  manufacture  of  war  supplies,  and  finally  the 
losses  incident  to  the  transition  back  to  peace-time  industry  in  the 
period  of  reconstruction  at  the  close  of  the  war.  Now  there  may  be  a 
few  who  would  volunteer  under  these  circumstances;  but  the  general 
tendency  in  any  event  would  be  to  delay  as  long  as  possible,  to  delay 
perchance  too  long  to  be  of  any  assistance  in  the  prosecution  of  the  war. 

It  should  be  observed,  however,  that  this  method  eventually 
results  in  a  readjustment  of  business  to  war  requirements.  It  is 
largely  accomplished  by  a  negative  process — as  a  result  of  declining 
profits  from  normal  operations,  caused  by  a  curtailment  of  consump- 
tive demand.  There  are  several  reasons  for  this  retrenchment  in 
consumption.  In  the  first  place,  the  perfect  barrage  fire  of  argument 
as  to  the  necessity  of  saving  which  has  been  hurled  at  the  American 
public  in  recent  months  is  bearing  fruit.  It  is  now  [June>  I9I8] 
regarded  as  unpatriotic  not  to  save  as  never  before  in  our  history. 

In  the  second  place,  it  is  impossible  for  the  rank  and  file  of  the 
American  people  to  buy  Liberty  Bonds  and  spend  as  usual.  If  they  buy 
bonds  it  must  be  at  the  sacrifice  of  accustomed  luxuries.  Moreover, 


l8o  ECONOMICS  OF  WAR 

we  are  now  looking  forward  to  the  payment  of  taxes,  and  we  are 
making  our  preparations  for  this  by  economizing  in  our  normal 
purchases.  It  must  be  borne  in  mind  in  this  connection  also  that  at  a 
time  when  the  future  is  so  uncertain  a  great  many  people  are  saying, 
"  I  had  better  save  all  I  can  now,  because  there  is  no  telling  whether 
it  will  be  possible  for  me  to  save  anything  in  the  next  few  years." 

Finally,  it  must  be  noted  that  the  rapid  rise  of  prices  in  nearly 
every  line  eventually  forces  rigid  economy  among  the  masses.  Sta- 
tistics published  by  the  government  early  in  1918  show  that  retail 
prices  of  foodstuffs  in  the  United  States  are  now  57  per  cent  higher 
than  they  were  in  1914,  while  general  wholesale  prices  are  81  per  cent 
higher.  Students  of  the  question  are  unanimous  in  the  belief  that 
prices  will  continue  to  rise  here  throughout  the  war,  just  as  they  have 
in  the  nations  of  Europe.  It  will  therefore  shortly  be  impossible  for 
the  masses  of  our  people  to  devote  much  of  their  earnings  to  the 
purchase  of  nonessentials.  They  will  count  themselves  fortunate  if 
they  are  able  to  purchase  enough  of  the  necessities  of  life  to  sustain 
themselves  in  a  state  of  normal  efficiency.  Already  in  many  cases  the 
pinch  of  war  prices  is  beginning  to  mean  real  privation. 

These  forces,  however,  do  not  for  several  years  result  in  a  complete 
shifting  of  productive  energy  from  nonessential  lines.  The  chief 
reason  for  this  is  that  the  laboring  classes,  who  as  a  result  of  the  war 
receive  unprecedentedly  high  wages,  are  unable  to  resist  the  tempta- 
tion to  spend  their  new-found  wealth  for  the  luxuries  and  comforts 
of  life,  which  have  so  long  been  denied  them. '  This  excess  of  purchas- 
ing power  in  the  hands  of  the  "rich  war  laborers"  has  had  a  striking 
manifestation  in  England;  and  it  began  to  develop  rapidly  in  the 
United  States  in  the  year  1918.  A  complete  readjustment  of  industry 
can  be  rapidly  accomplished,  therefore,  only  by  the  exercise  of  some 
form  of  coercion  on  the  side  of  production,  such  as  the  exercise  of 
priority  rulings  or  conscription  of  the  use  of  industrial  establishments. 

2.     VOLUNTARY  INDUSTRIAL  MOBILIZATION  OF  LABOR1 

In  our  industrial  system  the  standard  mechanism  for  inducing 
laborers  to  move  is  that  of  an  offer  of  higher  wages.  This  offer  was 
readily  forthcoming  from  the  contractors  in  war  industries,  particu- 
larly from  those  who  held  " cost-plus-percentage"  contracts,  which 

1  By  L.  C.  Marshall.  Adapted  from  "The  War  Labor  Program  and  Its 
Administration,"  Journal  of  Political  Economy,  XXVI  (1918),  425-60. 

ED.  NOTE. — Mr.  Marshall  is  dean  of  the  School  of  Commerce  and  Adminis- 
tration, University  of  Chicago;  now  Chief  of  the  Section  on  Industrial  Relations 
of  the  Emergency  Fleet  Corporation. 


PROBLEM  OF  INDUSTRIAL  MOBILIZATION  181 

made  it  actually  to  the  profit  of  the  employer  to  pay  high  wages  for 
his  workers.  War  contractors  "bid  away"  from  ordinary  industries 
their  skilled  workers,  disrupting  in  so  doing  some  of  the  basic  industries 
of  the  country,  and  then  bid  against  each  other  for  these  workers. 
The  lack  of  general  planning,  or  indeed  of  general  knowledge  of  the 
turn  events  were  taking,  caused  wages  to  rise  very  irregularly  in  the 
various  trades  affected,  in  the  various  communities  affected,  and  even 
in  the  different  industrial  plants  within  a  given  community. 

The  competitive  bidding  of  the  various  contractors  was  ac- 
centuated by  their  firm  belief  that  there  was  a  scarcity  of  labor, 
particularly  of  skilled  labor.  It  is  not  surprising  that  this  belief 
should  have  been  prevalent.  There  was  undoubtedly  a  scarcity  of 
certain  kinds  of  skilled  labor;  there  was  a  scarcity  of  many  kinds  of 
skilled  labor  in  the  congested  districts;  and  the  story  of  England's 
difficulties  in  providing  skilled  labor  had  been  widely  circulated. 
One  feature  of  our  situation  was  very  generally  overlooked.  The 
scarcity  of  shipping  made  our  problem  very  different  from  that  of 
England.  The  actual  situation  is  that,  conceding  scarcity  of  certain 
kinds  of  labor  and  of  many  kinds  of  labor  in  certain  districts  and  of 
maladjustment  of  labor  supply  in  many  districts,  there  is  no  real 
scarcity  of  labor,  taking  the  country  as  a  whole  [April,  1918]. 

To  this  hectic  wage  situation  there  was  added  the  fact  that  we  did 
not  have  a  satisfactory  system  of  employment  exchanges  through 
whose  activities  the  movement  of  workers  could  take  place  in  an 
orderly  fashion  according  to  carefully  determined  requirements. 
The  result  was  that  the  movement  occurred  in  a  highly  disorderly 
manner,  guided,  if  such  a  term  may  be  used,  by  newspaper  advertise- 
ments of  private  industries,  by  wild  rumors  of  high  wages  in  some 
distant  locality,  and  by  the  patriotic  desire  of  the  individual  worker 
to  be  of  service.  A  plant  manager  in  one  of  these  war-industry  towns 
said  that  "for  weeks  laborers  milled  around  like  cattle"  in  his  town. 
The  story  is  told  of  one  community  in  which  an  investigator  met 
incoming  trains  and  watched  workers  accept  employment  in  as  many 
as  six  to  ten  plants  in  the  same  day,  moving  from  one  to  the  other  in 
the  hope  of  ever-higher  wages  and  accepting  employment  in  every  one 
whose  wage  offer  was  larger  than  that  of  its  predecessor.1 

1  High  wages  are  alleged  to  have  contributed  to  the  demoralization  of  labor  in 
another  way.  Reports  are  numerous  that  workers  stayed  away  from  their  tasks 
some  days  of  the  week  because  the  high  wages  enabled  them  to  make  what  they 
regarded  as  a  satisfactory  living  by  working  the  other  days.  One  plant  reported 
that  it  had  to  maintain  a  pay-roll  of  10,000  in  order  to  have  an  average  of  9,000 
report  for  work  each  morning. 


182  ECONOMICS  OF  WAR 

There  is,  of  course,  no  such  thing  as  a  "normal"  labor  turnover. 
Some  writers  have  estimated  that  a  labor  turnover  of  100  per  cent  per 
year  represents  average  conditions.  In  these  war  industry  plants  a 
labor  turnover  of  400  or  500  per  cent  was  regarded  low,  and  one  of 
i, 600  to  2,000  per  cent  was  by  no  means  phenomenal. 

3.    INDUSTRIAL  CONSEQUENCES  OF  VOLUNTARY 
ARMY  RECRUITING1 

Voluntary  recruiting  is  not  merely  unjust;  it  is  harmful  in  its 
outcome.  It  is  the  injustice  which  causes  the  obvious  and  immediate 
difficulty.  For  instance,  for  young  bachelors  of  twenty  and  twenty- 
five  to  remain  peacefully  smoking  their  cigarettes  in  the  streets  whilst 
heads  of  families  are  risking  death  is  evidently  unjust;  but  it  also 
involves  extra  expense  to  the  state,  for  every  unmarried  soldier  costs 
only  eighteen  pence  a  day  and  his  keep,  whilst  in  the  case  of  each 
married  volunteer  a  wife  and  almost  always  several  children  must  be 
provided  for.  It  was  calculated  in  the  month  of  August  that  three 
men  who  had  enlisted  in  London  on  the  same  day  were  leaving  alto- 
gether twenty-six  persons  to  be  supported  by  the  state.  Not  only, 
then,  for  a  moral  reason  should  compulsory  service,  if  established,  be 
enforced  first  of  all  on  bachelors.  The  voluntary  system  has  other 
defects  still  more  injurious  to  the  successful  conduct  of  the  war.  Not 
only  is  the  number  of  recruits  smaller  than  it  might  be,  but  who  can 
foretell  what  this  number  will  be  to-morrow,  or  six  months  hence? 
It  is  impossible  to  estimate  and  prepare  the  necessary  equipment  and 
the  adequate  lists  of  instructors  and  officers;  this  became  clear  in  the 
first  months  of  the  war.  Such  was  the  sudden  rush  of  volunteers, 
that  for  lack  of  enough  buildings,  uniforms,  guns,  and  instructors 
many  had  to  be  refused.  The  men  were  discouraged;  the  idea  spread 
that  no  more  men  were  wanted,  and  the  next  appeal  met  with  a  poor 
response ;  it  was  necessary  to  resort  to  new  propaganda.  Then  there 
was  another  difficulty  leading  to  another  kind  of  confusion.  A  man 
would  often  enlist  for  a  particular  corps  or  a  particular  service  only. 
A  chief  engineer,  priceless  in  the  workshop,  would  insist  on  going  to 
the  firing  line ;  an  unskilled  mechanic  would  prefer  to  serve  at  home  in 
a  factory.  Finally,  for  lack  of  the  numbers  of  fighting  men  which 

1  By  Andr6  Chevrillon.  Adapted  from  England  and  the  War,  pp.  197-99. 
Copyright  by  Doubleday,  Page  &  Co.,  Garden  City,  New  York,  1917. 

ED.  NOTE. — M.  Chevrillon  is  an  eminent  French  writer.  This  volume  was 
printed  in  England  with  a  preface  by  Rudyard  Kipling. 


PROBLEM  OF  INDUSTRIAL  MOBILIZATION  183 

conscription  would  give,  the  state,  as  the  war  extends  and  the  need  of 
soldiers  increases,  ends  by  taking  all  who  offer  themselves,  even  boys 
and  weaklings,  who  quickly  sink  to  the  hospital  and  are  finally  dis- 
missed. Time  was  required  to  reveal  all  these  defects,  some  of  them 
clearly  immoral,  of  a  system  which  owes  all  its  prestige  to  its  appear- 
ance of  superior  morality  and  the  force  of  tradition.1 

4.     SELECTIVE  MILITARY  CONSCRIPTION2 

One  form  of  mobilizing  the  labor  resources  of  the  country  for  war 
production  is  through  the  negative  process  of  selecting  tne  men  for 
the  Army  with  full  regard  to  the  needs  of  industry.  In  July,  1918, 
this  .problem  had  assumed  so  definite  a  shape  in  the  United  States 
that  the  Chicago  Daily  News  writes  editorially  as  follows: 

Mr.  Baker  says  that  from  within  the  present  draft  age  he  can  get  all 
the  soldiers  he  needs  between  now  and  the  first  of  next  January.  Yes. 
But  can  he  get  them  without  taking  them  from  factories  and  from  farms 
whose  output  is  fundamentally  essential  to  the  conduct  of  the  war  ?  Can 
he  get  them  without  crippling  and  slowing  the  war  ? 

There  are  multitudes  of  idle  unmarried  men  above  the  present  draft  age. 
Some  of  them  are  idle  in  the  ordinary  complete  sense — they  are  loafers. 
Others  are  idle  in  the  technical  sense — they  are  engaged  in  occupations 
which  are  injurious  to  the  community  or  else  they  are  busy  with  tasks  (such 
as  cooking)  which  could  easily  be  performed  by  women.  Hundreds  of 
thousands  of  these  men  are  perfectly  fit  for  the  front.  Other  hundreds  of 
thousands  among  them  are  perfectly  fit  for  service  as  line  of  communication 
troops.  And  still  other  hundreds  of  thousands  are  perfectly  fit  for  non- 
combatant  work  in  uniform.  And  they  would  not  be  missed.  That  is, 
they  would  not  be  industrially  missed. 

But  consider  the  cannon  industry.  We  are  behind  with  cannon.  At 
our  best,  according  to  authorized  statements  from  Washington,  we  cannot 
get  our  biggest  railway-mount  cannon  ready  till  next  year.  Any  slightest 
removal  of  men  from  the  cannon  industry  will  simply  add  one  more  post- 
ponement to  the  happy  and  necessary  day  when  we  shall  blast  the  Germans 
off  the  soil  of  France  and  Belgium.  Mr.  Baker  knows  this  fact.  He 
knows  that  when  you  take  a  man  out  of  the  cannon  industry  you  lose  days 
and  days,  and  perhaps  weeks,  while  finding  another  man  and  teaching  him 

"The  selection  in  the  next  chapter  entitled  "The  Organization  of  Public 
Opinion  in  England,"  by  M.  Chevrillon,  should  be  read  in  conjunction  with  this 
selection — particularly  the  last  pages  describing  the  "compulsory  voluntary" 
recruiting  system. 

1  From  the  Chicago  Daily  News,  July  3,1918. 


1 84  ECONOMICS  OF  WAR 

his  new  job.  And  Mr.  Baker  knows  that  certain  factories  in  the  cannon 
industry  at  this  minute  are  lying  idle  for  a  considerable  number  of  hours 
every  day  because  of  a  lack  of  men. 

Therefore,  in  advising  Congress  not  to  extend  the  present  draft  age 
Mr.  Baker  implicitly  gives  us  this  promise: 

"From  within  the  present  draft  age  I  will  get  all  the  soldiers  needed 
during  the  next  six  months;  and  yet  I  will  not  take  one  man  from  any  place 
where  cannon  are  forged,  or  from  any  place  where  cannon  are  machined, 
or  from  any  place  where  cannon  carriages  are  built,  or  from,  any  place 
where  panoramic  sights  for  cannon  carriages  are  assembled,  or  from  any 
place  where  optical  glass  for  panoramic  sights  is  ground,  or  from  any  place 
where  steel  for  any  portion  of  any  cannon  or  of  any  cannon  carriage  is 
smelted  or  refined.  I  will  leave  the  cannon  industry  whole.  And  I  will 
leave  the  airplane  industry  whole.  And  I  will  leave  the  rifle  industry,  and 
the  machine-gun  industry,  and  the  powder  industry,  and  every  other  basic 
war  industry,  all  absolutely  whole.  I  ask  your  trust  and  I  pledge  you  my 
word." 

5.    WORK  OR  FIGHT1 

Every  man,  in  the  draft  age  at  least,  must  work  or  fight. 

This  is  not  alone  a  war  of  military  maneuvers.  It  is  a  deadly 
contest  of  industries  and  mechanics.  Germany  must  not  be  thought 
of  as  merely  possessing  an  army;  we  must  think  of  her  as  being  an 
army — an  army  in  which  every  factory  and  loom  in  the  Empire  is  a 
recognized  part  in  a  complete  machine  running  night  and  day  at 
terrific  speed.  We  must  make  ourselves  the  same  sort  of  effective 
machine. 

We  must  make  vast  withdrawals  for  the  Army  and  immediately 
close  up  the  ranks  of  industry  behind  the  gap  with  an  accelerating 
production  of  every  useful  thing  in  necessary  measure.  How  is  this 
to  be  done  ?  The  answer  is  plain.  The  first  step  toward  the  solution 
of  the  difficulty  is  to  prohibit  engagement  by  able-bodied  men  in  the 
field  of  hurtful  employment,  idleness,  or  ineffectual  employment,  and 
thus  induce  and  persuade  the  vast  wasted  excess  into  useful  fields. 

One  of  the  unanswerable  criticisms  of  the  draft  has  been  that  it 
takes  men  from  the  farms  and  from  all  useful  employments  and 
marches  them  past  crowds  of  idlers  and  loafers  away  to  the  Army. 
The  remedy  is  simple — to  couple  the  industrial  basis  with  other 
grounds  for  exemption  and  to  require  that  any  man  pleading  exemp- 
tion on  any  ground  shall  show  that  he  is  contributing  effectively  to 
the  industrial  welfare  of  the  nation. 

1  By  General  Crowder. 


PROBLEM  OF  INDUSTRIAL  MOBILIZATION  185 

6.     THE  PRIORITY  METHOD1 

Priority  must  be  accorded  to  the  services  of  war.  When  an  army 
is  to  be  moved  all  means  of  transport  in  sight  are  commandeered. 
When  an  army  is  to  be  fed,  civilians  protest  in  vain  against  the  seizure 
of  stores.  So  matters  have  stood  since  time  immemorial.  This  is 
why  it  now  seems  merely  common  sense  to  enact  a  law  giving  the 
president  authority  to  claim  priority  in  the  transportation  of  goods 
essential  to  the  prosecution  of  the  war.  Whether  the  output  of  steel 
mills  shall  be  assigned  to  the  building  of  war  ships,  merchant  ships, 
railways,  office  buildings,  or  summer  hotels,  should,  we  all  feel,  be 
determined  by  a  like  principle  of  priority.  If  we  have  as  yet  no  law 
guaranteeing  priority  for  military  requirements  in  the  field  of  pro- 
duction, we  feel  that  this  is  merely  a  gap  in  our  war  arrangements, 
to  be  stopped  for  the  present  by  patriotic  action  on  the  part  of  the 
producers  themselves. 

What  is  novel  in  the  present-day  conception  of  priority  is  its 
breadth  of  scope.  When  the  whole  industry  of  a  nation  is  mobilized 
behind  the  fighting  line,  it  is  not  merely  finished  munitions  that  must 
be  given  priority  in  transportation,  but  also  the  materials  and  fuel 
for  further  munitions  production.  The  food  supply  of  the  industrial 
population,  as  well  as  that  of  the  army,  has  a  claim  to  priority.  So 
also  have  clothing  supplies,  lumber  for  housing,  and  whatever  else 
is  essential  to  working  efficiency.  In  production  it  would  be  impos- 
sible to  fix  definite  limits  upon  the  application  of  the  priority  principle. 
We  can  not  much  longer  permit  the  free  flotation  of  the  securities  of 
foreign  enterprises,  nor  even  of  the  less  essential  domestic  enterprises, 
so  long  as  national  loans  or  issues  designed  to  finance  railways  or 
industrial  enterprises  of  prime  necessity  are  to  be  floated.  Modern 
warfare,  in  involving  the  whole  national  life,  has  made  inevitable  a 
control  of  business  practically  coextensive  with  the  economic  system. 

The  application  of  the  priority  principle  to  transportation  and 
production  is  quite  in  accord  with  plain  common  sense.  It  is  none  the 
less  revolutionary  in  its  social  economic  implications.  What  it  means 
is  that  necessities  shall  have  right  of  way.  If  we  have  excess  pro- 
ductive capacity,  the  unessentials  and  luxuries  may  be  provided,  but 
not  otherwise.  And  necessities  are  definable  in  terms  that  take 
account  only  of  physical  requirements.  There  is  no  room  in  the 
definition  for  class  distinctions.  A  new  country  house  may  seem  a 
matter  of  necessity  to  the  man  of  fortune,  but  he  will  persuade  no 

1  By  Alvin  Johnson  (see  p.  43).  Adapted  from  "What  Priority  Means,"  The 
Ncii'  Republic  (June  30,  1917),  p.  237. 


1 86  ECONOMICS  OF  WAR 

priority  board  to  permit  shipment  of  building  materials  while  cars  are 
needed  for  coal  or  wheat.  Nor  will  he  persuade  them  to  let  him  have 
lumber  that  could  be  used  for  ships  or  workingmen's  camps,  or  labor 
that  could  be  employed  to  advantage  in  production  for  more  clearly 
national  and  democratic  needs. 

7.    INDUSTRIAL  CONSCRIPTION  FOR  WAR  SERVICE1 

By  industrial  conscription  the  government  could  transfer  laborers 
from  the  industries  that  are  unimportant  to  the  fields  of  production 
that  are  imperatively  necessary  as  rapidly  as  is  required,  without 
waiting,  possibly  indefinitely,  for  public  economizing  to  force  read- 
justment through  the  decline  of  profits  and  the  closing  of  factory  doors. 
Industrial  establishments  engaged  in  manufacturing  commodities 
that  are  unnecessary  for  war  purposes  could  by  industrial  conscription 
be  forced  to  convert  themselves  at  once  into  factories  for  the  manu- 
facture of  munitions  -and  other  war  materials.  New  construction 
that  is  not  necessary  for  war  purposes  could  be  halted  and  the  energy 
engaged  therein  diverted  to  the  channels  where  imperatively 
demanded.  Such  a  system  would  reduce  to  a  minimum  the  social 
loss  of  time  and  energy  incident  to  the  transition  period.  Wisely 
administered  (note  the  qualification)  upon  a  basis  of  what  may  be 
called  selective  industrial  conscription  it  would  eliminate  a  great  part 
of  the  confusion,  disruption,  and  maladjustment  incident  to  the  ordi- 
nary financial  method  of  readjustment. 

Not  only  are  the  social  losses  involved  in  the  transition  less  than 
under  the  method  of  gradual  readjustment,  but  the  direct  losses  to 
capitalists  are  almost  certain  to  be  less.  Assume  that  time  permits  a 
gradual  transition  covering  a  period  of  two  or  three  years.  Would 
the  losses  through  gradual  readjustment  by  means  of  the  financial 
machinery  be  less  than  through  direct  commandeering  ?  The  former 
method  means  vainly  struggling  along  in  present  lines  with  lower 
margins  of  profits  and  heavy  losses  as  reduced  sales  gradually  develop; 
it  is  likely  to  mean  with  any  given  establishment  months  of  loss  before 
bankruptcy  and  then  a  considerable  interval  of  no  business  at  all 
while  attempting  to  fit  itself  into  newer  lines  of  production.  Only  in 
cases  where  the  rehabilitation  of  factories  is  a  simple  process  can  the 
conversion  be  made  without  heavy  losses.  Even  in  these  cases, 
however,  the  tendency  will  be  to  delay  the  fatal  step  as  long  as  possible, 
and  this  means  until  the  pinch  of  declining  profits  is  no  longer  toler- 
able. Under  the  method  of  industrial  conscription,  however,  the 

1  By  Harold  G.  Moulton.     From  "Industrial  Conscription"  (see  p.  180). 


PROBLEM  OF  INDUSTRIAL  MOBILIZATION  187 

conversion  could  be  forced  before  the  decline  in  profits  threatens 
insolvency.  And,  moreover,  the  losses  attending  the  entrance  into 
the  new  lines  of  industry  could  be  reduced  to  a  minimum  by  directing 
capital  to  the  places  of  greatest  need.  It  is  a  method,  substantially 
speaking,  of  carefully  planned  adjustment  by  a  board  of  experts 
acquainted  with  the  entire  situation,  as  against  the  slow  and  uncertain 
method  of  trial  and  error  by  business  men  who  hope  and  believe  that 
business  will  continue  as  usual,  and  who,  when  eventually  forced  from 
present  lines  of  activity,  find  themselves  only  partially  or  inaccurately 
acquainted  with  the  government's  requirements. 

But  aside  from  all  this  it  must  be  emphasized  that  the  method 
of  industrial  conscription  saves  what  is  at  present  more  precious 
than  gold  itself — it  saves  time.  If  selective  conscription  of  men  may 
be  justified  on  the  ground  that  the  volunteer  system  is  hopelessly  slow 
and  uncertain  where  speed  and  certainty  are  indispensable,  may  not 
conscription  of  industry  be  justified  on  the  same  grounds  ?  If  ships, 
munitions,  and  food  rather  than  soldiers  are  to  render  our  greatest 
service  to  our  Allies,  why  resort  to  the  method  of  efficiency  in  the 
raising  of  armies  and  the  method  of  inefficiency  and  uncertainty  in 
the  raising  of  crops  and  supplies  ? 

Shall  we  answer,  Because  conscription  of  industry  is  un-American, 
because  it  places  autocratic  power  in  the  hands  of  a  democratic  govern- 
ment and  strikes  at  the  very  foundation  of  our  institutions — private 
property,  vested  interests,  free  initiative,  individual  liberty,  competi- 
tion, and  all  the  rest  ?  A  similar  answer  may  be,  and  has  been,  made 
with  reference  to  military  conscription,  but  we  have  overruled  the 
objection  there  mainly  on  the  ground  that  the  time  element  is  so 
tremendously  important  that  ordinary  peace-time  principles  and  ideals 
have  to  give  way.  Much  as  we  may  dislike  the  principle  and  method 
of  conscription,  do  we  not  dislike  and  fear  the  alternative — the 
indefinite  eclipse  of  democratic  institutions — more  ? 

In  one  important  respect  industrial  conscription  is  incomparably 
less  objectionable  than  military  conscription.  The  man  who  is 
compelled  to  serve  in  the  army  is  forced  to  offer  life  itself  in  the  cause 
for  which  he  is  enlisted ;  the  man  who  is  compelled  to  close  his  factory 
or  convert  it  to  different  uses,  the  man  who,  as  a  laborer,  is  compelled 
to  change  his  employment,  at  best  offers  but  his  services  for  a  smaller 
remuneration.  It  is  the  old  question  of  life  versus  property.  The 
nation  which  protests  and  believes  that  there  is  all  difference  between 
a  prize  court  and  a  submarine — between  temporary  detention  of  our 
ships  and  their  cargo  with  legally  determined  compensation  after  the 


1 88  ECONOMICS  OF  WAR 

war  and  the  sinking  of  our  ships  and  citizens  without  a  warning — can 
make  so  far  as  justice  is  concerned  only  one  decision  on  the  question  of 
industrial  versus  military  conscription. 

The  method  of  industrial  conscription  obviously  raises  enormous 
problems  of  its  own.  How  shall  we  provide  the  machinery  necessary 
to  its  successful  administration?  Who  shall  be  given  the  power  to 
decree  life  or  death  for  industrial  establishments  in  the  exercise  of  the 
selective  requirements  of  the  plan  ?  Who  shall  decide  what  industries 
are  important  to  keep  alive  in  war  time — for  recreational  and  cultural 
purposes  as  well  as  for  physical  and  military  requirements  ?  What 
man  or  what  body  of  men  can  be  found  with  the  necessary  omniscience, 
with  the  requisite  prevision,  for  such  a  method  of  industrial  reorganiza- 
tion? I  have  spoken  of  a  board  of  experts,  but  a  friend  of  mine 
remarks:  "We  may  call  them  experts  but  that  does  not  make  them 
really  expert;  they  would  be  sure  to  make  no  end  of  mistakes;  they 
are  not  in  a  position  to  determine  in  anything  approaching  a  scientific 
manner  what  lines  of  human  endeavor  count  for  most."  That  there 
is  point  to  such  contentions  in  piping  times  of  peace  I  would  be  the 
last  to  deny,  but  in  time  of  war  the  problem  is  profoundly  changed. 
An  administrative  board  giving  its  entire  time  to  the  study  of  the 
situation  could,  it  seems  to  me,  determine  and  guide  with  considerable 
wisdom  the  apportionment  of  our  national  energy.  The  insistent 
demands  of  the  War  Department  for  ships,  for  munitions,  for  supplies 
furnishes  abundant  evidence  of  the  things  that  are  needed  most; 
the  demand  side  of  the  problem  certainly  has  no  insuperable  obstacles. 
The  determination  of  what  particular  commodities  shall  be  dispensed 
with  is  perhaps  not  so  simple  a  task.  But  could  not  any  of  us  upon 
reflection  think  of  a  score  of  commodities  that  are  less  important  for 
war  purposes  than  shells,  than  food,  than  shovels,  than  airships? 
We  need  not  look  for  100  per  cent  efficiency  in  order  to  justify  the 
effort.  Any  percentage  of  efficiency  would  be  a  net  gain  over  the 
present  method  of  sheer  inefficiency. 

XVIII.    Lessons  from  European  Experience 

I.    FRANCE'S   INDUSTRIAL   SITUATION   IN   THE 
AUTUMN  OF   igH1 

The  first  effect  of  the  war  was  almost  a  complete  disorganization 
of  French  industry.  Labor  was  suddenly  taken  away  from  the 

1  By  Raoul  Blanchard.  Adapted  from  "The  Revival  of  Industry  in  France," 
in  North  American  Review,  CCVI  (July,  1917),  50. 

ED.  NOTE. — Mr.  Blanchard  is  a  French  exchange  professor  at  Harvard 
University. 


PROBLEM  OF  INDUSTRIAL  MOBILIZATION  189 

quarries,  limekilns,  cement-works,  paper-mills,  iron-works.  The 
gravity  of  the  labor  situation  may  be  seen  when  it  is  understood  that 
the  labor  supply  was  reduced  by  about  three-fourths  by  the  call  to 
the  colors  of  all  able  workingmen  from  the  age  of  nineteen  to  forty- 
five.  The  paralysis  lasted  during  all  the  months  of  August  and 
September,  1914,  and  the  revival  of  trade  was  very  slow  until  the 
beginning  of  1915. 

However,  it  did  not  take  a  very  long  time  to  discover  that  this 
stoppage  of  all  work  was  a  tremendous  mistake.  The  consumption 
of  ammunition  and  war  material  is  so  great  in  modern  battles  that 
even  in  the  supposition  of  a  short  war  the  production  of  France  was 
not  adequate  to  the  demand.  That  the  war  would  be  long  began  to 
appear  inevitable  to  the  most  clear-sighted  people  during  the  winter 
of  1914-15.  It  was  necessary  to  set  about  the  manufacture  of  arms, 
ammunition,  and  war  supplies.  The  need  was  much  more  pressing,  as 
the  coal  and  iron  regions  of  France  were  for  the  greater  part  occupied 
by  the  enemy.  On  the  other  hand,  this  supposition  of  a  war  of  con- 
siderable duration  imposed  upon  the  country  the  obligation  of  making 
the  most  of  all  its  resources,  since  it  needed  still  greater  revenue  to 
buy  supplies  in  large  quantities  from  foreign  nations.  The  manu- 
facturers had  before  them  the  task  of  resuming  their  industries  and 
increasing  their  output. 

The  most  pressing  duty  was  of  course  the  manufacture  of  products 
necessary  for  national  defense.  These  are  various,  and  the  southeast, 
to  take  one  district  for  example,  could  produce  a  good  many  of  them. 
Though  the  region  is  not  supplied  with  material  for  heavy  iron-works 
and  could  not  manufacture  guns,  it  was  at  least  possible  to  work  on 
shells  and  grenades,  to  manufacture  explosives,  to  prepare  cotton  for 
powder,  to  produce  timber  and  cement  for  the  trenches,  stocks  for 
rifles,  and  many  other  utilities.  At  the  same  time  an  attempt  was 
made  to  restore  the  activities  of  paper-mills  and  to  give  an  impulse  to 
glove-making  and  silk-manufacture. 

The  difficulties,  as  may  well  be  understood,  were  enormous. 
Everything  was  lacking;  labor,  coal,  raw  material,  and  transportation 
services  were  utterly  disorganized.  Thus  passed  several  anxious 
weeks.  Little  by  little  these  problems  were  studied  and  solved  with 
the  help  of  a  new  administrative  organization,  the  "  Sous-secretariat 
d'Etat  de  rArtillerie,"  which  became  later  the  "Ministere  de  1'Arme- 
ment."  Each  particular  problem  was  solved  by  the  most  practical 
means,  the  power  of  the  state  being  now  a  help,  and  not  a  hindrance, 
to  private  initiative. 


190  ECONOMICS  OF  WAR 

Various  schemes  were  devised  to  answer  the  needs  of  the  moment. 
The  first  was  to  take  men  out  of  the  army  and  send  them  to  industrial 
work.  This  was  done  with  great  caution  during  the  winter  of  1914-1 5. 
The  proportion  of  the  men  thus  taken  increased  more  and  more  during 
the  year  1915  and  reached  its  fullest  extent  in  1916.  The  specialists 
in  steel  work  were  the  first  to  be  taken  out  of  the  trenches;  these  were 
far  from  being  sufficient,  and  common  workmen  were  added  to  them. 
Then  chemists  and  workmen  trained  in  the  manufacture  of  explosives 
were  recalled;  electric  engineers  were  sent  back  to  the  hydro-electric 
plants;  miners  above  thirty- five  years  of  age  who  belonged  to  the 
territorial  regiments  were  sent  to  the  mines;  paper-makers  and  card- 
board-makers who  could  be  employed  in  the  preparation  of  explosives 
were  put  to  work;  cabinet-makers  were  put  to  manufacturing  rifle 
stocks;  wood-cutters  were  brought  back  from  the  front  in  order  to  see 
that  there  was  no  waste  in  providing  the  enormous  amount  of  wood 
needed  in  the  army.  All  this  recalling  of  mobilized  men  was  effected 
at  first  according  to  the  need,  and  without  method.  By  degrees  it 
became  clear  that  the  output  would  be  greater  if  these  soldier-workmen 
were  assigned  to  the  plants  or  factories  where  they  were  working 
before  the  war.  As  it  would  have  been  unwise  to  take  too  large 
a  number  of  men  out  of  the  fighting  units,  hundreds  of  thousands  were 
taken  from  the  auxiliary  troops  of  the  interior,  men  who  through  lack 
of  physical  ability  to  fight  were  employed  in  sedentary  tasks.  Thus 
in  1915  and  1916  auxiliaries  were  swept  away  to  become  workmen, 
foremen,  secretaries,  bookkeepers,  accountants,  etc.  Finally  the 
administration  decided  to  draw  from  the  oldest  classes  of  men  still 
under  the  military  law.  These  were  called  in  1915  and  sent  to  the 
factories — men  born  in  1868,  either  bachelors  or  married  men  without 
children. 

Another  draft  was  made  on  the  civil  population.  To  make  up 
for  the  absence  of  male  help,  women  were  called  upon  for  a  great 
number  of  occupations.  Along  with  the  women  the  refugees  were 
to  do  their  part.  After  a  rather  long  period  of  unsettled  life  these 
refugees  took  again  to  regular  occupations,  some  working  in  the  fields 
as  agricultural  hands,  others  in  factories.  Today  it  is  difficult  to 
find  unemployed  people  among  them. 

The  alien  population  for  France  is  also  large,  considerable  numbers 
of  Italians,  Spaniards,  and  Portuguese  being  employed  in  the  south- 
eastern region.  A  newer  element  was  provided  by  natives  from 
French  colonies,  namely,  Morocco  and  Algeria.  Since  the  war 


PROBLEM  OF  INDUSTRIAL  MOBILIZATION  IQI 

started,  large  numbers  of  Greeks  and  Armenians  have  been  imported 
to  France,  and  during  the  last  two  years  something  like  200,000 
Chinese  have  been  brought  to  France  for  unskilled  work. 

The  last  resource  was  the  enemy  itself.  There  are  in  France 
more  than  250,000  German  prisoners  engaged  in  various  work  and 
receiving  a  salary  for  it.  The  largest  number  are  engaged  in  agri- 
cultural work,  but  a  good  many  gave  themselves  willingly  to  manu- 
facturing which  was  not  directly  connected  with  national  defence. 
In  the  southeast  they  are  building  hydro-electric  plants,  working  on 
the  railway  tracks  or  on  the  roads,  or  employed  anywhere  as  ordinary 
workmen.  Thus  by  these  various  means  the  difficult  problem  of 
labor  has  been  solved. 

2.    INDUSTRIAL  MOBILIZATION  IN  ENGLAND1 

We  discovered  to  our  surprise  at  the  beginning  of  the  war  that 
war  apparently  meant  prosperity  and  not  poverty.  The  huge 
governmental  expenditures  and  the  loans  and  taxation  which  they 
caused  resulted  in  an  enormous  redistribution  of  wealth.  Wages 
advanced,  and  millions  found  that  they  had  more  money  than  they 
had  ever  had  before.  The  result  was  that  consumption  actually 
tended  to  go  up  among  the  poorer  classes,  and  labor  and  materials 
vitally  required  for  war  purposes  were  diverted  to  meeting  these  new 
demands.  It  was  some  time  before  our  government  realized  the 
disastrous  nature  of  this  tendency,  and  it  was  long  before  the  whole 
of  the  people  realized  that  though  an  individual  may  be  able  to  afford 
to  be  a  spendthrift  in  war  time,  a  nation  cannot  afford  that  he  shall  be. 
To  put  industry  on  a  war  footing,  so  that  the  nation  should  produce 
what  is  required  for  war  and  as  much  of  it  as  possible,  required  drastic 
measures  on  the  part  of  our  government. 

Perhaps  the  simplest  way  of  explaining  why  such  measures  were 
required  is  to  try  to  give  some  idea  of  our  national  production  and 
consumption  in  normal  times  and  show  how  it  has  been  affected  by 
the  war.  Most  figures  of  national  production  and  consumption  are 
unreliable,  but  the  English  figures,  though  somewhat  out  of  date, 
happen  to  be  fairly  reliable,  as  they  are  the  result  of  a  searching 

1  By  R.  H.  Brand.  Adapted  from  an  unpublished  address  before  the  American 
Bankers  Association,  September,  1917. 

ED.  NOTE. — Mr.  Brand  was  vice-chairman  of  the  British  War  Mission  to  the 
United  States. 


192  ECONOMICS  OF  WAR 

investigation  by  a  Royal  Commission  on  the  Census  of  Production 
some  years  ago.  The  figures  I  give  are  for  the  year  1907.  No  doubt 
by  the  year  1914  they  had  been  very  much  increased  and  have 
changed  still  more  since,  but  they  will  serve  as  an  illustration  of  my 
argument  : 

In  1907  the  British  people  are  estimated  to  have  produced 

goods  to  the  total  amount  of,  roughly $10,000,000,000 

The  nation  consumed  during  that  year  in  personal  con- 
sumption    7,050,000,000 

It  spent  on  capital  purposes  at  home : 

a)  On  betterment  of  its  national  plant 950,000,000 

b)  On  maintenance  of  its  national  plant 900,000,000 

It  used  up  goods  to  the  value  of  (in  keeping  up  and  prob- 
ably increasing  its  stocks  of  material  on  hand) 325,000,000 

It  exported  goods  in  the  form  of  loans  to  foreign  countries 

of  about 500,000,000 

making  up  in  all  the  $10,000,000,000  that  it  actually  produced.  By 
1914  probably  its  income  had  increased  to  at  least  $12,500,000,000, 
and  the  surplus  of  goods  which  it  had  over  to  export  as  loans  to  foreign 
countries  seems  to  have  increased  from  about  $500,000,000  to 
$1,000,000,000. 

What  happens  then  in  war  time  ?  First  of  all  there  was  an  enor- 
mous and  growing  demand  for  materials  of  all  kinds  for  war  consump- 
tion, either  in  the  form  of  guns,  or  shells,  or  military  clothing,  or 
food,  or  motor  trucks,  or  aeroplanes,  or  any  of  the  hundred  and  one 
items  of  military  equipment,  and  not  only  for  ourselves  but  for  our 
Allies. 

How  was  that  demand  met  ?  It  is  obvious  from  the  figures  given 
above  that  there  must  be  great  changes  either  in  production  or  con- 
sumption, or  there  would  be  no  materials  at  all  for  war  purposes, 
because  they  are  normally  all  used  up  in  other  directions,  and  in  fact 
7/10  of  what  we  produced  in  the  year  1907  was  immediately  used  up 
again  in  the  form  of  personal  consumption  by  the  people.  It  is  clear 
we  must  either  have  increased  our  production  of  goods,  or  reduced  our 
consumption,  or,  lastly,  bought  more  goods  from  foreign  countries  by 
selling  them  our  liquid  capital  assets. 

Let  us  consider  first  how  we  can  have  reduced  our  consumption. 
It  must  have  been  in  one  or  all,  no  doubt  all,  of  the  following  ways: 

i.  By  cutting  off  altogether  our  normal  peace  loans  to  foreign 
countries,  i.e.,  in  1914,  $1,000,000,000. 


2.  By  cutting  down  all  normal  additions  to  our  national  plant, 
i.e.,  by  building  no  more  houses,  factories,  railways,  roads,  etc., 
except  for  purely  war  purposes.     This  expenditure  in  1907  amounted 
to  about  $950,000,000. 

3.  By  cutting  down  and  ceasing  as  far  as  possible  to  spend  money 
on  the  maintenance  of  our  national  plant,  except  the  minimum 
required  to  keep  it  running.     This  expenditure  in  1907  amounted  to 
$900,000,000.     We  have  undoubtedly  let  our  roads,  railways,  houses, 
and  so  forth,  to  some  extent  deteriorate. 

4.  And  most  important  of  all,  by  cutting  down  our  civil  personal 
expenditure.     This  is  so  far  the  largest  item  of  consumption  that  it  is 
here  where  the  most  important  savings  can  be  made. 

By  these  means  it  is  obvious  that  at  the  expense  of  our  be- 
coming poorer  and  allowing  our  national  plant,  our  railways,  houses, 
factories,  etc.,  to  deteriorate,  and  by  strict  personal  economies 
we  have  been  able  to  turn  a  large  volume  of  production  in  the 
direction  of  war  material;  in  other  words,  to  devote  the  labor 
and  material  formerly  used  for  the  above  purposes  purely  to  war 
purposes. 

But  how  about  production  ?  Has  it  decreased  or  increased  ?  The 
greatest  productive  capacity  in  a  nation  is  to  be  found,  of  course, 
among  the  men  who  are  of  righting  age.  In  England  the  total  number 
of  "occupied  males"  between  the  ages  of  eighteen  and  forty-four,  i.e., 
roughly,  the  conscription  age,  was,  in  1911,  7,200,000.  The  number 
of  men  from  the  United  Kingdom  in  our  army  and  navy  amount  to 
over  5,000,000;  therefore,  out  of  every  seven  of  these  men,  on  the 
average  five  are  now  soldiers  or  sailors.  These  men  are  lost  from 
the  productive  capacity  of  the  nation.  It  is  obvious  that  if  our  pro- 
duction has  remained  the  same,  or  has  increased,  it  must  have 
been  the  result  of  extraordinary  efforts  on  the  part  of  the  small  per- 
centage of  occupied  males  of  fighting  age  left,  on  the  part  of  all  the 
other  males,  occupied  or  formerly  occupied,  and  on  the  part  of  all 
females. 

Notwithstanding  the  great  difficulties,  I  think  it  is  probable  that 
our  production  is  quite  as  great  as  before.  Measured  in  money,  and 
owing  to  the  rise  of  prices,  it  would  probably  be  much  greater.  This 
is  due  to  the  fact  that  the  whole  population,  practically  speaking,  has 
been  working,  and  working  intensely.  Millions  of  women  who  have 
not  worked  before  are  working  now.  No  one  is  idle.  Every  acre  of 
land  or  garden  that  can  be  used  is  being  used.  Methods  of  production 


IQ4  ECONOMICS  OF  WAR 

have  been  speeded  up,  labor-saving  machinery  in  industry  and  agri- 
culture multiplied.  In  every  direction  the  wheels  have  been  turning 
faster. 

But,  perhaps  more  important  still,  the  character  of  our  production 
has  entirely  changed — almost  our  entire  industry  is  producing  for  war 
purposes.  Ordinary  civil  needs  are  no  longer  considered.  We  have  of 
course  to  produce  what  is  essential  for  life,  but  beyond  that  all  our 
energies  are  directed  to  war  production.  The  government  has  of 
necessity  compelled  the  whole  of  British  industry  to  produce  for  war 
and  to  produce  what  it  is  told  to  produce,  because  in  no  other  way 
could  our  own  armies  and  our  Allies  have  been  supplied.  No  man  is 
free  to  do  what  he  likes  with  his  labor  and  capital,  with  his  ships,  or 
with  his  steel.  He  has  to  do  what  he  is  told  to  do.  By  this  means 
production  for  war  purposes  has  enormously  increased,  and  civil  con- 
sumption has  enormously  decreased,  because  the  goods  for  the  civil 
population  were  no  longer  produced  and  one  cannot  buy  what  isn't 
there.  Instead  of  gramophones,  the  gramophone  company  makes 
fuses;  instead  of  cloth  for  ordinary  clothes,  the  woolen  factory  makes 
khaki;  instead  of  motor  cars,  the  motor-car  maker  makes  shells. 

Apart  from  selling  our  liquid  capital  assets  in  return  for  foreign 
goods,  and  apart  from  borrowing  from  foreign  countries  for  the  same 
purpose,  our  power  to  provide  our  own  army  and  navy  with  all  they 
want  and  have  any  surplus  over  for  our  Allies  has  indeed  depended 
entirely  on  our  extraordinary  efforts  in  production — not  in  normal 
production,  but  in  war  production — and  also  on  the  extent  to  which  we 
have  been  able  to  reduce  our  civil  consumption  of  all  kinds.  I  put 
production  first  because,  while  economy  in  consumption  is  exceedingly 
important,  increased  productive  capacity  devoted  to  war  material, 
in  my  opinion,  is  still  more  important.  Our  increased  productivity 
has,  as  I  say,  been  devoted  entirely  to  war  requirements.  We  have 
had  to  turn  over  our  whole  industry  from  a  peace  to  a  war  basis.  We 
have  both  voluntarily  and  compulsorily  cut  off  the  production  of  goods 
which  are  unnecessary  for  war  purposes.  Many  trades  have  been 
actually  shut  down  and  the  labor  taken  from  them  and  handed  over 
to  war  industries.  Labor  itself  has  been  subjected  to  restrictions 
which  would  have  been  wholly  impossible  before  the  war.  Labor  may 
not  leave  its  employment  without  government  leave;  salaries  and 
wages  may  not  be  increased  without  government  approval.  Measures 
for  the  control  of  industry  which  were  unheard  of  and,  in  fact,  abso- 
lutely impossible  before  the  war  have  been  imposed  upon  all  industry. 


PROBLEM  OF  INDUSTRIAL  MOBILIZATION  195 

Fixed  prices  have  been  placed  on  the  most  important  materials.  The 
government  now  has  the  absolute  control  of  the  use  of  steel,  copper, 
lead,  wool,  leather,  and  other  materials  for  which  the  war  demand  is 
insatiable,  and  also  of  all  materials  manufactured  therefrom.  No  use 
may  be  made  of  most  of  these  materials  for  any  purpose  whatever 
without  a  certificate  being  first  obtained.  No  buildings  of  any  kind 
may  be  erected  without  leave  of  the  Ministry  of  Munitions.  The 
whole  of  the  industry  may  now  be  said  to  be  directed  to  the  require- 
ments of  the  government.  Its  regulation  is  an  enormous  task.  In 
the  head  office  of  the  Ministry  of  Munitions  alone  there  are  more  than 
10,000  people. 

On  the  other  side,  partly  as. result  of  the  goods  required  actually 
not  being  produced,  and  partly  as  result  of  restriction  of  consumption, 
either  compulsory  or  voluntary,  we  have  cut  down  enormously  our 
ordinary  consumption  of  luxuries,  and  are  now  cutting  down  on 
necessities.  Both  for  financial  reasons  and  owing  to  the  pressure  on 
tonnage  caused  by  the  submarine,  the  government  has  for  long  insti- 
tuted an  extremely  drastic  restriction  of  imports.  I  regret  myself 
that  these  restrictions  were  not  introduced  earlier,  and  here  is  some- 
thing in  our  experience  which  may  be  useful  to  the  United  States. 
Perhaps  I  can  bring  the  situation  clearly  before  you  by  the  following 
comparison:  Before  the  war,  we  imported  for  the  needs  of  our  civil 
population,  about  55,000,000  tons  of  materials  of  all  kinds  each  year. 
We  are  now  importing  about  30,000,000  tons.  Of  that  30,000,000,  at 
least  10,000,000  represent  munitions  of  war  of  one  kind  and  another 
for  our  Allies  as  well  as  ourselves.  The  balance  of  20,000,000  tons  is 
in  the  main  foodstuffs.  Therefore,  as  against  55,000,000  tons  before, 
we  are  now  getting  20,000,000,  nearly  all  of  foodstuffs.1 

You  may  think  that  all  my  insistence  on  our  increased  production 
and  increased  economy  in  consumption  has  not  much  bearing  on  the 
problem  of  financing  our  Allies.  But  in  reality  it  has  the  most  direct 
and  vital  bearing,  and  your  experience  in  this  respect  will  be  the  same 
as  ours.  We  have  never  once,  I  believe,  refused  an  Ally  the  necessary 
credit  if  we  have  been  able  consistently  with  our  own  demands  to 
supply  them  with  the  goods  which  they 'wanted  from  our  own  home 
products.  We  continue  now  to  grant  them  the  necessary  credit  when 
we  can  make  the  goods  ourselves  in  Great  Britain.  But  the  problem 

1  ED.  NOTE. — Further  drastic  restrictions  of  imports  were  made  in  the  spring 
of  1918  in  order  to  release  shipping  with  which  to  transport  American  troops  to 
France. 


196  ECONOMICS  OF  WAR 

has  been  to  find  the  labor  and  material  to  produce  what  they  wanted 
as  well  as  what  we  wanted.  We  have  as  a  matter  of  fact  supplied 
them  with  every  variety  of  materials  in  enormous  quantities.  We 
have  lent  them  continuously  hundreds  of  ships  at  cost  price,  the  most 
valuable  commodity  in  the  world.  We  have  supplied  them  with  coal, 
steel  in  very  large  quantities,  with  guns,  rifles,  ammunition,  explosives, 
and  every  other  kind  of  munitions,  motor  trucks,  rails,  railway  mate- 
rials, locomotives,  and  so  on.  In  the  year  1916  alone  we  supplied 
them,  in  addition  to  the  materials  quoted  above,  which  are  of  course 
the  most  important  for  war  purposes,  with  9,000,000  pairs  of  boots, 
over  100,000,000  sand  bags,  40,000,000  yards  of  jute,  millions  of  socks 
and  blankets,  and  in  addition  several  thousand  tons  of  leather;  also 
cloth,  foodstuffs  of  every  kind,  portable  houses,  tools,  hospital 
equipment,  and  so  forth. 

We  have  been  able  to  do  this  and  to  continue  doing  it,  first  of  all, 
because  our  whole  industry  is  now  devoted  to  war  purposes;  secondly, 
because  of  our  intensified  productive  energy;  and  thirdly,  because  of 
our  economy  in  civil  consumption.  Without  these  efforts  we  might 
have  been  prepared  to  give  our  Allies  the  same  amount  of  credit,  but 
that  would  have  been  useless,  because  the  goods  they  wanted  would 
not  have  been  there. 

We  have  had,  however,  to  assist  our  Allies,  not  only  by  supplying 
them  with  what  we  could  produce  internally,  but  by  enabling  them  to 
purchase  abroad.  This  has  been  a  problem  of  extreme  difficulty  and 
of  a  character  different  from  any  that  is  likely  to  face  the  United 
States.  And  it  is  here  that  we  have  had  to  supplement  our  resources 
by  the  means  I  have  already  mentioned,  namely,  the  sale  of  every 
liquid  asset  our  government  could  lay  its  hands  on. 

We  are,  as  you  know,  by  no  means  a  self-contained  nation.  With 
all  our  efforts  we  have  not  been  able  to  produce  all  that  we  or  our 
Allies  have  required.  The  demands  of  war  are  absolutely  insatiable, 
and  we  have  neither  been  able  to  produce  the  kinds  of  things  which 
were  required,  nor  have  we  had  enough  of  what  we  could  produce 
ourselves.  Copper,  for  instance,  we  had  to  buy  from  you,  and  where, 
as  in  the  case  of  steel,  we  produced  largely  ourselves,  so  unlimited 
have  been  our  own  and  our  Allies'  demands  that  there  also  we  had  to 
buy  largely  from  you.  At  home  our  supply  to  our  Allies  of  all  articles 
has  been  limited  only  by  our  productive  capacity  and  our  economy, 
and  not  by  any  lack  of  credit.  Abroad  it  has  been  limited  by  our 
means  of  payment  and  by  the  credit  we  have  been  able  to  secure. 


PROBLEM  OF  INDUSTRIAL  MOBILIZATION  197 

3.     GERMANY'S  MOBILIZATION  OF  NATIONAL 
RESOURCES 

A.    IN  1914' 

On  August  4,  1914,  when  England  declared  war,  the  terrible 
event  which  has  never  happened  before  occurred,  a»d  our  country 
became  a  beleaguered  fortress.  Shut  in  by  land  and  by  sea,  it  was 
now  thrown  on  its  own  resources,  and  war  lay  before  us  immeasurable 
in  time  and  space,  in  danger  and  sacrifice.  Three  days  after  the 
declaration  of  war  I  could  not  bear  the  uncertainty  of  the  position 
any  longer,  and  I  announced  myself  at  the  War  Office,  where  Colonel 
Scheuch  received  me  in  a  friendly  manner.  I  told  him  that  our 
country  was  provided  with  the  necessary  material  of  war  only  for  a 
limited  number  of  months.  He  agreed  as  to  my  calculation  of  the 
duration  of  the  war,  and  so  I  put  this  question  to  him:  "What  is 
being  done,  what  can  be  done,  to  prevent  a  shortage  of  supplies  ?" 

The  first  question  which  met  us  was  a  question  of  discovery.  We 
had  to  know  for  how  many  months  the  necessary  supplies  would  last. 
On  this  hung  every  measure  that  we  took.  The  reports  of  various 
industries  were  contradictory  to  the  extent  of  10  per  cent  in  most 
cases.  I  was  told  that  I  could  get  the  statistics  in  six  months.  But 
I  had  to  get  them  in  a  fortnight.  A  daring  conception,  a  hypothesis, 
was  necessary,  and  this  plan  succeeded.  It  was  assumed  that  the 
average  output  of  German  industry  would  be  in  the  same  proportion 
as  in  any  given  large  group  of  firms.  The  War  Office  had  900  to  1,000 
contractors.  If  we  sent  around  inquiries  to  these  firms  and  gathered 
what  their  power  of  production  was  in  their  various  industries  we 
should  be  able  to  arrive  with  some  probability  at  the  total  capacity 
of  the  country.  It  was  a  question  of  big  figures  and  the  experiment 
succeeded.  In  a  fortnight  light  began  to  come,  and  in  three  weeks 
we  had  accurate  information.  In  a  few  materials  the  supply  was 
more  than  sufficient  for  the  war  demands  at  that  time,  which  have 
since  been  greatly  exceeded.  But  in  the  great  majority  of  cases  it 
was  much  less. 

There  were  four  possible  methods  to  establish  industry  on  a  firm 
basis  and  to  guarantee  our  capacity  for  defense.  In  the  first  place,  all 

1  By  Walter  Rathenau.  Adapted  from  "German  Organization  at  the  Begin- 
ning of  the  War,"  an  editorial  in  Current  History  (January,  1917),  pp.  7r3  &• 

ED.  NOTE.— Dr.  Walter  Rathenau,  head  of  the  General  Electric  Company 
of  Germany,  was  appointed  at  the  beginning  of  the  war  to  superintend  the  supply- 
ing of  the  German  War  Office  with  raw  materials. 


198  ECONOMICS  OF  WAR 

raw  stuff  in  the  country  had  to  be  put  in  a  position  that  could  be 
commandeered,  and  voluntary  courses  and  private  desires  could  not 
longer  be  consulted.  Every  material  and  every  half-manufactured 
product  had  to  be  disposed  of  in  such  a  way  that  nothing  might  be 
devoted  to  luxury  or  its  relative  needs.  The  flow  of  things  had  to  be 
forcibly  restricted,  so  that  they  were  automatically  diverted  to  those 
final  products  and  means  of  manufacture  which  the  army  needed. 
That  was  the  first  and  most  difficult  task. 

Secondly.     [Here  the  censor  has  made  a  complete  cut.] 

The  third  source  of  supply  which  offered  itself  to  us  was  manu- 
factures. We  had  to  see  that  everything  that  was  produced  in  the 
country  was  necessary  and  essential.  We  had  also  to  see  that  new 
methods  of  production  were  discovered  and  developed  where  former 
technical  means  were  insufficient. 

And  now  for  the  fourth  plan.  We  had  to  find  a  substitute  for 
stuff  that  was  in  excessive  demand  in  other  and  more  easily  made 
things.  Where  it  was  prescribed  that  this  or  that  object  had  to  be 
made  out  of  copper  or  aluminum,  it  could  be  made  out  of  something 
else.  Something  different  had  to  be  found,  and  old-fashioned  methods 
of  manufacture  had  to  be  put  on  a  new  basis. 

When  the  old  methods  became  troublesome,  owing  to  the  need 
of  material,  prejudice  had  to  be  broken  down,  and  products  had  to 
be  made,  which  was  more  easily  done  in  view  of  our  means  of  supply. 

These  were  the  methods  which  came  under  survey.  They  were 
not  the  solutions  of  the  difficulties,  but  they  showed  the  way,  possible 
means  of  solution,  and  the  hope  of  attaining  our  ends. 

B.     COMPULSORY  CIVILIAN  SERVICE,  1916' 

The  German  Reichstag  on  December  2,  1916,  adopted  a  compul- 
sory civilian  service  bill  by  a  vote  of  235  to  19.  This  is  the  most 
drastic  step  ever  undertaken  by  any  government  to  mobilize  all  the 
man  power  of  a  nation  by  force.  It  represents  the  apotheosis  of 
organization  in  war  and  confirms  the  absolute  confidence  of  the 
German  people  in  the  invincibility  of  their  organizing  talent.  The 
execution  of  this  measure  is  in  the  hands  of  General  Groner,  chief  of 
the  newly  created  Kriegsamt  (War  Emergency  Office),  who  formerly 
was  chief  of  the  Military  Railway  Service. 

'  Adapted  from  "Germany  under  Civil  Conscription,"  an  editorial  in  Current 
History  (January,  1917),  pp.  710-11. 


PROBLEM  OF  INDUSTRIAL  MOBILIZATION  199 

All  men  of  the  whole  of  Germany  from  sixteen  to  sixty  are  to  be 
enrolled  and  controlled  from  one  central  organization  called  the 
Office  of  War. 

General  Groner  describes  the  organization  as  follows:  The  new 
War  Office  represents  Germany  as  a  colossal  firm  which  includes  all 
production  of  every  kind  and  is  indifferent  to  the  kind  of  coat,  civil 
or  military,  which  its  employes  wear.  The  new  measures  are  intended 
to  mobilize  all  effective  labor,  whereas  up  to  the  present  we  have  only 
mobilized  the  army  and  industry.  The  whole  war  is  becoming  more 
and  more  a  question  of  labor,  and  in  order  to  give  the  army  a  firm 
basis  for  its  operations  the  domestic  army  must  also  be  mobilized. 
All  the  labor,  women's  as  well  as  men's,  must  be  extracted  from  the 
population,  so  far  as  possible  voluntarily.  But  if  voluntary  enlist- 
ment does  not  suffice  we  shall  not  be  able  to  avoid  the  introduction 
of  compulsion. 

C.     GERMANY'S   "ORGANIZATION    FOR   VICTORY,"  1916' 

Germany  is  girding  up  her  economic  loins  for  a  finish  fight  if 
necessary. 

Germany  is  preparing  for  a  war  lasting  to  all  eternity.  We  shall 
first  double  our  present  production  of  ammunition  and  other  war 
material,  then  treble  it,  and  so  on  and  on  until  every  man  and  every 
woman  will  be  working  in  the  defense  of  the  Fatherland.  By  spring 
we  shall  be  running  under  full  steam. 

The  object  of  the  new  patriotic  auxiliary  service,  as  the  Germans 
call  the  general  mobilization  of  labor  and  economic  resources,  is  to 
make  all  the  nation's  resources,  human  and  material,  effectively 
available  for  the  prosecution  of  the  war.  We  must  not  figure  on  the 
war  ending  next  year  or  the  year  after.  We  must  not  bother  our 
hearts  as  to  whether  England  or  any  other  state  will  want  to  make 
peace  sooner  or  later  or  ever.  We  must  not  organize  for  the  next  few 
months  only,  or  allow  ourselves  to  be  influenced  or  guided  by  any 

1  By  General  Groner.  Adapted  from  Staff  Correspondence  of  the  New  York 
Times,  December  14,  1916. 

ED.  NOTE. — As  indicated  above,  General  Groner  is  director  of  the  War 
Emergency  Office  of  Germany.  This  selection  is  from  an  interview  with  a  staff 
correspondent  of  the  New  York  Times.  It  is  significant  to  note  that  sixteen 
months  after  this  organization  was  effected  General  Ludendorff  was  able  to  say 
(at  the  opening  of  the  great  spring  offensive  of  1918)  that  the  Teutons  were 
superior  to  the  Allies  in  every  form  of  war  supplies — a  statement  which  was  not 
officially  denied  by  the  Allies  and  which  events  in  succeeding  months  did  not  belie. 


200  ECONOMICS  OF  WAR 

other  considerations  than  the  determination  to  continue  the  winning 
fight  so  long  as  it  may  be  necessary.  That  would  only  shunt  us  on  to  a 
false  track.  We  must  make  ourselves  absolutely  independent  of  the 
rest  of  the  world.  Only  thus  can  we  achieve  the  whole  measures. 

The  mobilization  of  labor  and  economic  resources  is  not  a  tem- 
porary or  half-way  measure.  We  assure  you  it  is  not  dictated  by  any 
necessity  of  the  moment.  There  is,  in  fact,  no  such  necessity  at  the 
present  time.  It  is  rather  a  farsighted  policy  to  prepare  for  any  and 
every  possible  eventuality  of  the  world-war. 

We  reached  the  conclusion  to  do  this  as  soon  as  we  saw  that  the 
Chancellor's  repeated  peace  offers  fell  on  stony  soil.  We  decided  then 
that  it  was  necessary  to  organize  for  a  fight  to  a  finish.  There  is, 
however,  no  rush,  no  hurry  about  it.  The  change  will,  and  must, 
come  very  gradually.  Such  a  colossal  change  can  not  be  dictated  at 
the  Board  of  Directors'  table  and  effected  immediately.  It  is  rather 
an  organic  development  or  evolution  from  one  organic  state  to  another, 
embracing  and  affecting  the  whole  nation. 

One  may  regard  it  as  a  great  pyramid,  of  which  the  base  is  coal  and 
iron.  Then  comes  the  transportation  question.  Then  the  auxiliary 
raw  materials  requisite  for  the  manufacture  of  powder,  steel,  etc. 
Then  the  necessary  semi-finished  products,  the  finished  shells  and 
cannon  forming  the  apex  of  the  pyramid. 

Closely  connected  with  all  this  is  the  food  question,  in  which  I  am 
also  interested.  We  are  building  from  the  ground  up.  We  are  first 
going  to  double  the  output  of  shells  and  cannon,  but  we  are  not 
beginning  at  the  top  with  the  manufactured  article.  On  the  contrary, 
we  are  first  doubling  the  coal  and  iron  base  of  the  pyramid  by  enlisting 
the  workers  necessary  to  double  the  output  of  basic  raw  materials. 
Intimately  connected  with  this,  we  are  taking  measures  to  supply 
adequate  food  to  the  heavy  workers,  notably  fats  from  the  Hindenburg 
fat  fund,  to  which,  in  answer  to  the  Field  Marshal's  appeal,  gratifying 
contributions  are  pouring  in  from  the  patriotic  German  peasantry 
and  agriculturists,  who  now  thoroughly  realize  what  is  at  stake. 

Next  we  are  taking  up  the  transportation  question,  first  doubling 
traffic  facilities  for  transporting  coal  and  iron  and  other  necessary  raw 
materials  by  both  rail  and  water,  the  canals  being  of  especial  impor- 
tance for  the  war  industries. 

German  locomotives  are  running  to  the  Taurus  in  Asia  Minor. 
We  are  operating  practically  all  the  Serbian  railways  with  German 
rolling  stock.  We  have  thousands  of  cars  in  Transylvania  and 


PROBLEM  OF  INDUSTRIAL  MOBILIZATION  201 

Roumania,  to  say  nothing  of  other  occupied  territories.  After  the 
transportation  problem,  we  .are  taking  measures  to  double  the  pro- 
duction of  the  auxiliary  raw  materials  and  semi-finished  products. 
As  one  example,  we  are  doubling  our  efforts  for  the  manufacture  of 
nitres  from  the  nitrogen  of  the  air.  Not  only  of  the  basic  raw  mate- 
rials, coal  and  iron,  but  of  auxiliary  raw  materials  we  have  no  lack. 

The  brains  of  our  chemists  and  technicians  are  supplying  the 
missing  imports,  and  will  continue  to  do  so.  Only  when  we  have 
accomplished  all  this  will  we  proceed  to  the  last  step  of  doubling  the 
production  of  shells  and  cannon.  Such  a  war  is  not  to  be  won  by 
looking  ahead  from  month  to  month,  but  only  by  thinking  of  the 
distant  future.  After  we  have  doubled  the  pyramid,  we  shall  proceed 
to  treble  it. 

By  spring  we  shall  be  going  full  steam  ahead.  After  that  our 
production  will  increase  from  month  to  month ;  and  we  have  the  labor 
and  raw  materials  for  keeping  up  the  pace  indefinitely. 

The  male  working  forces  available  between  the  ages  of  seventeen 
and  sixty,  as  provided  by  the  Auxiliary  Service  law,  will  cover  our 
requirements  into  the  distant  future,  but  ultimately,  aside  from  the 
children,  aged  and  sick,  every  man  and  woman  will  be  enlisted  for 
home  defense,  if  necessary.  The  home  army  will  be  the  whole  nation. 

What  we  are  engaging  on  is  not  alone  the  progressive  mobilization 
of  all  the  nation's  physical  strength  and  material  resources,  but  the 
mobilization  of  the  nation's  brains.  An  army  corps  of  professors, 
scientists,  chemists,  engineers,  technicians,  and  other  specialists  is 
already  working  with  the  Kriegstaat.  Our  idea  is  to  be  eminently 
scientific  and  practical — no  theorizing.  We  are  working  to  show 
results. 

We  are  co-operating  closely  with  the  war  industries  of  Turkey, 
Bulgaria,  and  Austria.  It  means  doubling  and  trebling  their  ammuni- 
tion supply,  too. 

The  military  successes  achieved  in  Roumania,  which  synchronize 
with  the  birth  of  patriotic  auxiliary  service,  are  an  advantage  that 
cannot  be  overestimated.  The  Danube  means  everything  to  us. 
Last  year  we  had  to  beg  Roumania  for  her  oil  and  grain  and  pay  our 
good  money  for  it  too.  Now  we  don't  need  to  beg  costly  favors  of 
Roumania. 

Lloyd  George  does  not  scare  us.  We  have,  however,  not  time  for 
busying  ourselves  with  politics;  we  have  more  important  things  to 
do — supplying  Hindenburg  with  the  means  of  victory. 


202  ECONOMICS  OF  WAR 

4.    THE   ECONOMIC    BREAKDOWN   OF    RUSSIA 

A.      HOW  RUSSIA   NEGLECTED   ECONOMIC   ORGANIZATION1 

At  the  beginning  of  the  war  the  Russian  government  did  not 
anticipate  more  than  a  few  months  of  fighting  and  accordingly  made 
no  plans  for  a  prolonged  struggle.  The  Russian  public  acquiesced  in 
this  program,  and  civilian  aid  was  primarily  directed  to  relief  work 
for  the  sick  and  wounded  of  the  army. 

The  mobilization  of  the  army  was  carried  out  with  great  speed 
but  regardless  of  economic  consequences.  The  policy  of  the  Russian 
government  seemed  to  be  the  simple  one  of  calling  to  the  colors  great 
numbers  of  soldiers  (20,000,000  men  were  mobilized)  who  should  be 
sent  to  the  front  without  delay,  without  adequate  equipment,  and 
without  thought  of  the  effects  upon  the  industrial  organization  back 
of  the  lines.  As  a  result  of  this  policy  the  first  months  of  the  war 
completely  dislocated  the  economic  life  of  Russia.  Among  the 
instrumental  factors  in  the  situation  the  following  may  be  mentioned. 

"First,  the  disproportionate  mobilization  of  the  man  power  of  the 
nation  served  as  a  heavy  drain  upon  the  supplies  of  food  and  manu- 
factured goods.  Production  of  necessities  shortly  proved  inadequate 
to  supply  the  army  with  the  necessities  of  existence.  The  situation 
was  rendered  much  worse  because  of  the  wasteful  and  corrupt  methods 
of  the  Commissary  and  other  services. 

Second,  Russian  industries  were  disorganized  because  it  was 
necessary  to  evict  the  German  element  that  had  established  itself, 
under  a  definite  program  of  penetration,  in  almost  every  branch  of 
industry.  It  was  not  a  question  simply  of  taking  over  the  German 
capital  that  had  been  invested  in  Russia,  for  in  almost  every  case 
German  capital  had  been  accompanied  by  German  administrative 
control  of  the  enterprise.  Many  factories  and  other  enterprises  had 
to  close  down,  for  the  moment  at  least,  because  the  directors  and 
managers  were  German  subjects,  requiring  internment. 

Third,  the  war  closed  all  of  Russia's  ports  except  Vladivostok  and 
Archangel.  These  two  ports  were  used  exclusively  for  the  import  of 
war  munitions.  As  they  were  inadequately  equipped  to  handle  even 
this  most  necessary  import,  this  meant  practically  a  prohibition  on 
the  import  of  any  but  war  supplies. 

1  By  Samuel  N.  Harper. 

ED.  NOTE. — Mr.  Harper  holds  the  chair  of  Russian  language  and  institutions 
at  the  University  of  Chicago.  He  has  spent  many  months  in  Russia  since  1914 
and  was  an  eye-witness  of  the  Revolution  of  1917. 


PROBLEM  OF  INDUSTRIAL  MOBILIZATION  203 

Fourth,  the  herds  of  the  provinces  immediately  behind  the  line 
of  battle  were  simply  requisitioned,  in  some  instances  whole  herds 
being  taken  without  any  regard  to  the  future  economic  welfare  of  the 
given  districts.  Time  and  distance  alone  prevented  requisition  from 
all  parts  of  Russia.  The  cattle  were  taken  to  the  front  in  herds,  often 
driven  on  foot,  and  were  slaughtered  on  the  spot  where  the  meat  was 
needed  for  the  soldiers,  the  hides  being  thrown  aside  to  rot.  As  a 
result  of  this  wasting  of  the  hides  the  supply  of  leather  for  military 
uses  and  for  shoes  for  both  the  army  and  the  civilian  population  was 
soon  utterly  inadequate  to  meet  the  requirements. 

Horses  were  also  requisitioned  for  the  armies,  leaving  the  supply 
for  agriculture  quite  inadequate  for  the  needs.  As  a  result  of 
decreased  agricultural  production  and  a  lack  of  transportation 
facilities,  the  army  horses  could  not  be  supplied  with  food  and  they 
died  by  the  tens  of  thousands. 

Fifth,  the  railway  system  of  Russia,  far  from  efficient  even  in 
peace  times,  broke  down  completely  by  the  end  of  the  first  year  of  the 
war,  because  the  rolling  stock  was  allowed  to  deteriorate.  The 
number  of  what  the  Russians  call  "sick"  locomotives  and  cars,  which 
were  simply  put  aside,  though  very  slight  repairs  would  have  returned 
them  to  service,  was  enormous.  The  basic  difficulty  here  was  that 
the  railway  repair  shops  were  converted  into  munitions  factories. 

Sixth,  the  converting  of  many  industries  to  the  manufacture  of 
war  supplies,  and  the  taking  over  of  the  entire  output  of  many  manu- 
facturing concerns  for  the  supply  of  the  army,  led  to  a  shortage  of 
manufactured  articles  on  the  open  market  for  the  civilian  population. 
By  the  end  of  the  first  year  the  shelves  of  many  large  warehouses  of 
firms  dealing  in  clothing,  boots,  and  so  forth,  were  empty.  By  the 
third  year  of  the  war  so  great  was  the  dearth  of  cloth  that  one  noted 
that  while  the  lines  in  front  of  the  bakeries  formed  only  in  the  early 
morning  hours,  housewives  gathered  in  front  of  the  shops  which  sold 
cloth,  at  eight  in  the  evening,  to  wait  the  twelve  hours  of  night  for  the 
opening  of  the  shop  in  the  morning. 

The  Russian  public  from  the  very  first  weeks  of  the  war  organized 
to  assist  in  the  care  of  the  wounded  and  sick  soldiers.  The  organiza- 
tion was  mainly  through  the  local  government  bodies,  called  municipal 
and  provincial  councils,  which  formed  "All-Russian"  Unions  to 
co-ordinate  their  activities.  The  men  at  the  head  of  these  so-called 
public  organizations,  as  opposed  to  governmental  departments, 
realized  toward  the  end  of  the  first  year  of  the  war  that  they  must 
extend  the  field  of  their  activities  in  order  to  prevent  the  growing 


204  ECONOMICS  OF  WAR 

disorganization  of  the  economic  life  of  the  country.  So  these  organi- 
zations entered  upon  a  campaign  of  "saving"  and  "production." 
They  saved  the  hides  that  were  being  thrown  away,  collected  the 
discarded  boots  at  the  front  and  repaired  them,  and  took  over  the  task 
of  supplying  the  underwear  for  the  whole  army — mobilizing  the 
village  co-operative  societies  to  fill  the  large  orders.  And  they  did 
much  to  organize  the  refugees  from  the  invaded  districts  for  productive 
work.  In  a  word,  these  men  saw  that  the  war  was  going  to  extend 
into  years  and  they  realized  that  only  foresight  and  organization  of 
productive  resources  would  make  it  possible  for  Russia  to  withstand 
economically  the  burdens  of  a  protracted  struggle. 

The  attitude  of  the  governmental  authorities  (the  bureaucratic 
departments)  toward  the  work  of  these  non-bureaucratic,  but  public, 
institutions  (the  Unions  of  the  Municipal  and  Provincial  Councils) 
was  one  of  suspicion  and  antagonism,  and  difficulties  were  put  in  their 
way  with  the  deliberate  intent  to  block  their  activities.  The  insti- 
tutions were  suspected  of  pursuing  political  aims.  Only  when  it 
became  clear  that  the  ruling  group  in  the  bureaucracy  was  consciously 
allowing  the  country  to  drift  into  a  state  of  anarchy  in  order  to  bring 
Russia  out  of  the  war  did  these  leaders  venture  to  risk  revolutionary 
methods  of  action. 

The  president  of  the  All-Russian  Union  of  Provincial  Councils, 
the  Zemstva,  was  Prince  Lvov,  the  first  Prime  Minister  of  the  new 
Russia  after  the  revolution  of  March,  1917.  In  the  monthly  reports 
of  the  work  of  the  All-Russian  Union  of  Zemstva,  Prince  Lvov 
repeatedly  issued  warnings  of  the  impending  economic  collapse  of  the 
country.  But  neither  he  nor  Kerensky  was  able  to  liquidate  the 
heritage  received  from  the  old  regime  in  time  to  stave  off  the  series 
of  economic  and  financial  crises  of  which  the  Bolsheviki  availed 
themselves. 

B.      A   WARNING   OF   IMPENDING   ECONOMIC   COLLAPSE1 

The  end  of  the  war  cannot  be  seen,  and  no  human  vision  can  at 
this  moment  define  its  duration.  Only  the  united  will  for  victory 
of  the  peoples  struggling  against  the  German  coalition  gives  confidence 
in,  and  the  safe  foundations  for,  a  lasting  peace.  Therefore  all  the 

1  By  Prince  Lvov.  Translated  from  Bulletin  of  the  All-Russian  Union  of 
Zemstva,  October,  1916. 

ED.  NOTE. — Prince  Lvov  was  at  the  time  president  of  the  All-Russian  Union 
of  Zemstva. 


PROBLEM  OF  INDUSTRIAL  MOBILIZATION  205 

questions  of  the  continued  and  organized  regulating  of  the  supply  of 
articles  of  prime  necessity  to  the  army  and  to  the  civilian  population, 
and  first  of  all  the  problems  of  food  supply,  have  become  more  and 
more  present  and  persistent.  We  note  the  daily  instances  of  dis- 
organization in  the  supply  of  food  and  articles  of  first  necessity — 
prices  have  gone  up  enormously,  and  frequently  one  cannot  secure 
products  at  any  price.  The  reason  lies  solely  in  the  absence  of  proper 
organization  and  also  the  absence  of  definite  knowledge  as  to  what  we 
have  and  what  we  need  ....  [ten  lines  deleted  by  the  censor]. 

At  the  present  moment  comprehensive  statistical  material  has 
been  collected,  which  gives  a  certain  amount  of  information.  But 
untiring  effort  is  needed  in  this  field.  But  most  of  all  one  must 
have  the  co-ordination  of  all  supply  enterprises,  with  the  institution 
of  a  single  responsible  control  over  them.  It  is  important  that  all 
institutions  that  have  to  do  with  problems  of  supply  should  act  on  the 
same  established  principles,  while  local  public  forces  should  be  secured 
the  widest  possible  latitude,  as  they  are  better  acquainted  with  the 
actual  economic  needs  of  the  population. 

Finally,  society  itself  must  learn  to  see  in  all  these  questions  a 
national  significance,  and  interests  of  state,  which  will  supersede  both 
class  interests  and  also  class  prejudices.  Both  these  factors  exercised 
considerable  influence  during  the  discussion  of  the  fixing  of  the  price 
of  wheat.  Some  tried  to  show  that  "landlord"  Russia  had  the  right 
to  the  same  war  profits  as  were  received  by  representatives  of  the 
industrial  class  in  time  of  war.  Others  saw  "agrarian  influences" 
where  in  fact  it  was  simply  a  question  of  supporting  the  fundamental 
source  of  our  national  wealth,  the  labor  of  the  agriculturalist,  who  not 
only  uses  bread  but  also  sells  it.  But  we  shall  know  how  to  free 
ourselves  here  from  mere  phrases  and  to  look  directly  at  our  Russian 
situation  without  any  desire  to  make  disclosures,  but  with  the  idea 
of  assisting.  We  shall  at  the  same  time  know  how  to  develop  in  the 
public  the  strong  sentiment  and  discipline  which  come  from  a  sense 
of  responsibility  and  national  duty. 


206  ECONOMICS  OF  WAR 

C.      THE   SITUATION   IN   THE   THIRD  YEAR   OF    WAR1 

The  old  regime  has  seemingly  done  everything  deliberately  to 
destroy  and  demoralize  the  trade-industrial  apparatus  it  took  years 
to  build  up.  As  a  result  the  usual  course  of  the  country's  eco- 
nomic life  was  stopped,  and  at  the  same  time,  through  the  pecul- 
iarly enforced  system  of  regulations,  a  wide  field  for  all  sorts  of 
abuses  and  speculations  was  opened.  We  must  frankly  acknowledge 
that  from  these  abuses  and  speculations  a  system  of  oppression  grew 
up  which  has  called  forth  fully  merited  reproach,  distrust,  and  hostile 
feelings  towards  the  representatives  of  the  trade-industrial  class. 

At  the  same  time  there  can  be  no  doubt  but  that  under  present 
circumstances,  lacking  most  of  the  necessaries  of  existence,  with  the 
factories  and  mills  forced  to  cut  down  their  production  due  to  lack  of 
raw  material  and  fuel,  with  the  demoralization  of  the  transportation 
system,  and  being  compelled,  despite  all  these  obstacles,  to  meet  the 
numerous  requirements  at  the  front — there  is  no  other  way  out  but 
government  control  of  private  industrial  and  mercantile  enterprises, 
and  the  cooperation  of  the  democratic  masses  of  the  population  in 
the  matter  of  regulating  the  trade-industrial  life  of  the  country.  In 
addition  to  fair  distribution  it  should  be  the  task  of  all  the  committees, 
which  are  to  become  parts  of  the  Ministry,  also  to  regulate  the  prices. 

Closely  connected  with  this  question  there  is  another  one  which  I 
personally  consider  of  tremendous  importance.  I  have  in  mind  the 
question  of  limiting  the  profits  of  all  mercantile  and  industrial  estab- 
lishments.2 Undoubtedly  a  properly  worked-out  solution  of  this 
question  would  have  the  tendency  to  check  the  unwarranted  growth 
of  prices  that  would  appease  the  masses.  The  moral  effect  of  a  decree 
limiting  profits  is  of  tremendous  importance,  not  only  in  that  it  would 
soften  the  feeling  of  ill-will  towards  the  trade-industrial  class,  but 
also  because  it  would  afford  the  government  a  new,  convincing  proof 
that  the  commercial  and  industrial  class  is  ready  to  make  all  possible 
sacrifices  for  the  common  good,  a  proof  which  would  paralyze  the 
voicing  of  any  new  demands  on  the  part  of  the  masses. 

1  By  A.  I.  Konovalov.  Adapted  from  an  address  before  the  Moscow  Stock 
Exchange  on  April  14,  1917.  Printed  in  The  Birth  of  the  Russian  Democracy, 
pp.  260-64.  Copyright  by  A.  J.  Sack  (Russian  Information  Bureau,  Woolvvorth 
Building),  New  York  City,  1918. 

ED.  NOTE. — Mr.  Konovalov  has  been  one  of  the  most  prominent  financers  of 
Russia  and  was  minister  of  trade  and  industry  under  the  first  provisional  govern- 
ment of  Russia. 

1  ED.  NOTE. — See  selection  LIII,  2,  for  Russian  prices  in  1918. 


PROBLEM  OF  INDUSTRIAL  MOBILIZATION  207 

Now,  these  are  the  main  ideas,  the  fundamental  points  of  view 
which  the  trade-industrial  class  should  consider  as  a  starting-point  in 
its  efforts  to  win  the  confidence  of  the  population  and  to  safeguard 
that  important  position  which  it  ought  to  occupy  in  the  life  of  the 
country. 

The  situation  is  becoming  all  the  more  difficult  because  of  the 
ever-increasing  famine  due  to  the  shortage  of  means  of  production 
as  well  as  of  all  the  necessaries  of  life;  this  famine  will  be  felt  very 
acutely,  not  only  on  account  of  the  lack  of  these  goods,  but  also  because 
of  the  overabundance  of  paper  money.  Uncontrolled  commerce  with 
a  tendency  for  acquisition  of  property  abroad,  which  is  prone  to 
develop  under  such  circumstances  if  left  to  private  enterprise,  must 
lead  to  the  further  depreciation  of  the  ruble. 


OBSTACLES  TO  RAPID  MOBILIZATION  IN 
LIBERAL  COUNTRIES 

Introduction 

The  anxious  query  has  many  times  been  raised  since  1914,  Can  a 
nation  with  democratic  institutions  be  made  efficient  for  the  purposes 
of  war?  The  answer  has  apparently  been  that,  given  time,  liberal 
states  can  cope  reasonably  well  with  autocracy.  It  seems  to  be  gener- 
ally agreed  that  whatever  a  nation  such  as  England,  for  example,  may 
now  lack  as  compared  with  Germany  in  the  matter  of  thoroughgoing 
co-ordination  of  effort  and  in  disciplined  efficiency  is  largely  offset  by 
"spiritual"  forces  that  are  unknown  in  the  heritage  of  Teutonic 
culture.  Whatever  may  be  the  balance  of  these  ultimate  factors  in 
military  efficiency,  it  is  one  of  the  most  obvious  lessons  of  the  war 
that,  without  abundant  time,  individualistic  countries  such  as  England 
and  the  United  States  would  have  been  impotent  in  the  present 
conflict. 

The  organization  of  public  opinion  in  England  (Section  XIX) 
reveals  the  tremendous  handicap  that  a  heritage  of  individualism 
imposes  to  a  rapid  and  effective  mobilization  for  war.  Incidentally, 
the  recognition  of  social  responsibility  and  community  interest  that 
is  eventually  brought  home  to  individualists  is  one  of  the  most  salu- 
tary results  of  the  war.  It  may  lead  us  generally  to  understand  that 
the  essence  of  democracy  is  a  co-operation  in  which  it  is  the  duty  of 
each  to  contribute  to  the  common  good  according  to  his  ability. 

At  the  time  of  our  entrance  into  the  war  it  was  confidently 
assumed  by  most  Americans  that  whatever  might  be  our  shortcomings 
on  the  distinctly  military  side  of  war,  the  American  genius  for  business 
efficiency  would  manifest  itself  in  a  way  that  would  amaze  the  Old 
World.  Yet  the  first  year  of  the  war  revealed  that  we  were  "  weakest 
where  we  were  supposed  to  be  strongest."  What  was  wrong  ?  Two 
things.  First,  the  individualism  which  characterizes  ordinary 
business  activities  has  little  place  where  the  task  is  a  national  one — 
that  of  organizing  and  co-ordinating  the  business  activities  of  half  a 
continent  with  a  single  end  in  view.  It  required  the  better  part  of  a 

208 


OBSTACLES  TO  RAPID  MOBILIZATION  209 

year  for  this  race  of  amateurs  in  the  matter  of  national  economics 
to  come  to  a  real  appreciation  of  the  nature  of  the  industrial  problem 
that  confronted  us.  Second,  there  appears  to  have  been  a  very  general 
inability  to  appreciate  the  importance  of  the  time  element.  Quantity 
production  of  standard  supplies  was  the  end  sought,  and,  moreover, 
since  we  are  the  nation  of  great  inventions,  everything  must  perforce 
be  of  American  design.  The  result  was  paralysis  in  many  lines  of 
war  manufacture. 

Significant  revelations  are  made  (Section  XXI)  bearing  on  the 
flexibility  of  our  governmental  machinery,  of  its  efficiency  for  the 
purposes  of  warfare,  and  of  its  adaptability  in  general  to  the  condi- 
tions of  the  intricate  social  and  industrial  world  of  our  times.  The 
concrete  examples  of  the  task  involved  in  developing  the  machinery 
for  war  administration  in  the  field  of  labor  and  industry  respectively 
(Section  XXII)  are  given  in  detail  in  order  that  one  may  realize  the 
enormous  amount  of  time  that  is  required  for  a  nation  with  no  admin- 
istrative agencies  for  war — and  few  for  peace — merely  to  get  ready 
to  do  something  efficiently. 

XIX.     The  Organization  of  Public  Opinion  in  England1 

In  order  to  organize  England  the  first  thing  was  to  organize  public 
opinion.  This  is  necessary  in  a  democracy,  where  the  state  has  no 
prestige  and  no  power  to  command,  where  also  it  lacks  the  means  of 
exerting  pressure  on  public  opinion. 

In  England  public  opinion  organizes  itself,  and  pretty  quickly, 
when  urgent  questions  arise.  This  is  a  result  of  natural  adaptation; 
it  is  a  form  of  reaction  gradually  acquired,  and  now  become  instinctive, 
because  necessary  in  a  country  where  no  measure  of  national  safety 
can  be  taken  unless  opinion  insists  upon  it.  At  the  end  of  May,  1915, 
it  was  given  to  the  writer  to  see  the  beginning  of  this  operation,  an 
operation  that  was  to  result  in  really  organic  changes.  Its  progress 
and  each  of  its  different  phases  could  be  followed  from  day  to  day. 
First  came  the  alarm  bell  of  the  Times,2  which  all  the  great  newspapers 
re-echoed;  then  questions  in  parliament,  meetings  throughout  the 

1  By  Andr£  Chevrillon  (see  p.   182).    Adapted  from  England  and  tlie  War, 
pp.  163-68,  202-13.     Copyright  by  Doubleday,  Page  &  Co.,  Garden  City,  New 
York,  1917. 

2  ED.  NOTE. — The  occasion  for  the  alarm  was  the  utter  collapse  of  an  Eng- 
lish attack  in  Artois,  made  in  co-operation  with  the  French,  owing  to  an  almost 
complete  lack  of  high  explosives. 


210  ECONOMICS  OF  WAR 

country,  with  speeches  by  the  chief  party  leaders  and  popular  speakers 
— after  this,  letters  from  the  public  to  the  papers,  examining  the  new 
question  from  all  sides,  many  of  them  signed  by  famous  names — 
authors,  professors,  bishops;  on  the  fifth  day,  the  first  posters,  put  up 
by  the  voluntary  recruiting  committees,  summoning  the  workmen, 
by  striking  pictures,  to  work  in  the  munition  factories;  and  at  the 
same  time,  at  all  the  news  agencies  and  on  the  railway  bookstalls,  the 
first  propaganda  pamphlets — on  the  following  Sunday  in  the  towns,  in 
church  and  chapel  alike,  sermons  delivered  by  famous  preachers, 
stimulating  the  minds  to  the  idea  of  the  unanimous  and  necessary 
effort.  A  week  later,  in  a  little  country  church,  where  the  rector  was 
addressing  his  congregation  of  farmers  and  labourers,  I  heard  the  last 
vibrations  of  the  alarm  bell  passing  over  the  quiet  rural  world. 

We  saw  what  the  sensation  was.  England  was  realizing  what  she 
lacked  in  order  to  fight  Germany:  a  systematic  organization  com- 
manded from  above.  Insufficiently  directed  by  a  party  government 
which  had  never  imagined  any  other  enemy  than  the  opposition  party, 
left  to  her  routine,  to  her  faith  in  the  happy  tendency  of  private 
activities  to  adjust  themselves  mutually  for  the  general  welfare, 
England,  in  this  war  in  which  industrial  superiority  seemed  to  play 
the  decisive  part,  England,  the  classic  country  of  mechanical  industry 
on  the  great  scale,  had  shown  herself  for  ten  months  powerless — 
some  people  said  openly  incompetent.  Towering  furnaces,  forges, 
foundries,  factories  unceasingly  covered  with  a  pall  of  everlasting 
smoke  her  northern  and  western  counties,  yet  she  had  not  been  able 
to  cast,  turn,  and  forge  the  cannon  and  shells,  the  accumulation  of 
which,  still  more  than  the  numbers  of  the  men,  would  compel  victory. 
Such  a  fact  seemed  amazing  and  all-important.  Not  only  did  it 
leave  English  soldiers  defenceless  in  face  of  an  enemy  who  had 
increased  his  armament  to  an  incredible  extent,  not  only  did  it  detain 
in  England  the  greater  part  of  the  new  troops,  which  for  lack  of  arms 
and  munitions  it  was  futile  to  send  to  be  shot  down  by  the  Germans, 
but  it  discredited  England  in  the  eyes  of  many  Englishmen,  for  it 
betrayed  what  seemed  a  national  inaptitude.  Thus  it  called  in 
question  the  fundamental  habits  and  principles  of  the  English  com- 
munity. 

In  these  extraordinary  circumstances  it  was  clear  that  the  individ- 
ual should  no  longer  be  free,  that  he  must  serve  at  the  post  appointed 
for  him  by  a  sovereign  and  competent  authority.  The  country  had  to 
change  her  whole  method  of  life,  the  old  English  method  of  adaptation 


OBSTACLES  TO  RAPID  MOBILIZATION  21 1 

after  the  event,  of  adjustment  under  the  spur  of  circumstances. 
Wait  and  see  was,  when  the  war  was  as  yet  but  threatening,  the  latest 
definition  of  this  method:  but  now  to  wait  for  the  facts  was  dangerous. 
Facts  must  be  forseen  and  provided  against;  nay,  they  should  be 
compelled.  It  was  no  longer  a  question  of  adjustment  to  reality,  but 
of  bringing  new  realities  into  being.  Thus  sprang  up  the  vision  of, 
and  the  longing  for,  a  new  England,  similar,  but  for  the  state  of  war,  to 
that  of  which  Mr.  H.  G.  Wells  had  already  sketched  an  ideal  picture — 
an  England  ruled  by  an  idea  which  may  thus  be  defined:  co-ordination, 
discipline,  integration  of  the  individual  into  a  system,  a  system  set  up 
by  the  state  for  its  own  purposes  and  exacting  the  subjection  of  all  to 
national  ends.  Naturally  this  idea  was  sure  to  meet  with  resistance, 
and  it  still  has  its  opponents.  Such  changes  in  the  modes  and  trend 
of  life  of  an  ancient  nation  attached  to  its  habits  and  traditions  can 
be  accepted  but  slowly,  but  such  was  the  impelling  force  of  the  new 
idea  that  it  passed  at  once  into  act.  Ten  days  after  the  alarm  raised 
by  the  Times  the  old  radical  government  committed  hara-kiri,  and  a 
cabinet  was  formed  such  as  had  never  been  seen,  for  it  brought  together 
both  parties,  no  doubt  in  order  to  attempt  measures  as  unprecedented 
as  itself.  Then  came  the  creation  of  a  munitions  department  directed 
by  Mr.  Lloyd  George,  hitherto  a  specialist  in  democratic  budgets, 
but  now  cheered  by  the  Conservatives  because  they  know  his  power 
and  that  no  one  can  speak  to  the  working  men  as  he  does — and  he  did 
speak  to  them  at  once,  at  Manchester,  Liverpool,  and  Bristol  (June  3, 
4,  and  12),  and  no  longer  of  their,  rights,  but  of  their  duties  and  of 
necessary  discipline.  On  the  twenty-third  of  June  the  Munitions  Act 
was  passed.1  Finally,  on  July  8,  came  the  census,  together  with  the 
institution  of  the  National  Register,  on  which  was  to  be  inscribed  the 
name  of  every  English  subject,  man  or  woman,  from  fifteen  to  sixty- 
five  years  of  age,  with  particulars  as  to  their  domestic  responsibilities, 
state  of  marriage  or  celibacy,  trade  or  profession,  and  the  special 
services  they  can  render  to  the  nation,  whether  for  industrial  or  mili- 
tary purposes.  By  this  new  census,  by  this  register  which  tells  the 
state  what  use  it  can  make  of  each  for  the  good  of  all,  the  idea  that 
each  member  of  the  community,  along  with  all  the  others,  has  a 
social  duty  became  visible  and  familiar  to  all,  and  people  began  to 
consider  the  possibility  of  obligations  hitherto  regarded  as  impracti- 
cable in  this  classic  land  of  individual  liberty. 

The  great  majority  of  the  British  Army,  two  or  three  millions, 
enlisted  voluntarily.     Such  a  thing  had  never  been  seen  and  would 


212  ECONOMICS  OF  WAR 

not  have  been  thought  possible;  it  is  one  of  the  finest  collective  acts 
of  a  nation  on  record.  But  all  the  same,  this  great  tale  of  the  conscien- 
tious came  to  an  end  at  last,  and  then  those  who  had  shirked  the 
recruiting  office  came  more  and  more  to  be  looked  on  as  an  inferior 
class  with  whom  one  might  take  liberties.  How  much  was  now  left 
to  them  of  that  private  and  guarded  domain  of  freedom  and  conscience 
which  no  one  is  supposed  to  enter?  Recruiting  agents,  volunteer 
canvassers,  clergymen,  neighbors  and  their  wives,  local  notabilities — 
a  clamorous  throng  pours  its  invasions  into  this  desecrated  retreat, 
urging,  forcing  the  shirker  to  take  the  pledge,  no  longer  content  with 
taking  what  once  would  have  seemed  the  liberty  of  putting  a  question 
on  such  a  private  matter,  or  daring  to  offer  unsolicited  advice.  Intim- 
idations, well-nigh  compulsion,  are  now  used;  humiliating  and  unjusti- 
fiable, exerted  as  they  are  by  a  casual  stranger,  and  not  by  the  state. 
Life  has  become  unbearable  to  the  man  who  still  takes  the  word 
"voluntary"  in  its  literal  sense,  and  still  fancies  he  has  the  right  to 
refuse.  The  rector  or  squire  of  his  village  asks  the  reason  of  his 
abstention,  his  employer  threatens  to  dismiss  him,  his  sweetheart  to 
throw  him  over,  his  lady  friends  cut  him,  others,  whom  he  has  never 
seen,  present  him  in  the  street  with  that  English  symbol  of  cowardice 
— a  white  feather.  What  now  of  the  sacred  principle  in  whose  name, 
for  all  its  illogical  injustice,  the  country  refused  to  change  a  system 
which  kept  it  in  a  state  of  military  inferiority  ?  Only  a  word  is  left, 
and  the  most  clear-sighted  and  sincere  of  the  Radicals,  these  staunch 
enemies  of  conscription,  perceive  this  plainly  enough  and  end  either 
in  supporting  or  at  least  in  tolerating  the  idea  of  compulsory  service 
— talking  no  longer  of  principle  but  of  expediency,  and  accepting 
beforehand  what  the  government,  the  only  competent  judge  of  the 
necessity,  decides.  "If  it  must  be,  it  must." 

But  for  the  masses,  never  given  to  analysis,  a  word,  even  when  it 
no  longer  corresponds  to  reality,  may  remain  all-powerful — a  stimulus 
to  feeling  and  to  action,  like  some  dogma  which  can  inspire  fanaticism 
even  when  it  means  nothing  to  the  brain.  This  essential  power  of 
words  and  signs,  and  in  a  more  general  sense,  of  appearances  and 
forms,  even  after  the  whole  substance  of  trfeir  contents  has  vanished 
or  changed,  the  English  have  always  intuitively  and  dumbly  under- 
stood. Instinctively  they  respect  this  power;  more,  they  know 
how  to  turn  it  to  account,  with  that  innate  and  deep-lying  sense 
of  life  and  its  irrational  processes  which  makes  them  so  indifferent 
to  logic. 


OBSTACLES  TO  RAPID  MOBILIZATION  213 

It  is  this  national  trait  which  affords  the  means  of  solving,  in  true 
English  fashion,  what  would  seem,  a  priori,  an  insoluble  problem:  how 
to  impose  military  service  on  men  who  regard  it  as  the  most  humiliat- 
ing slavery,  and  who  are  not  to  be  coerced.  A  good  enough  working 
solution — the  English  do  not  insist  on  theoretical  precisions-was 
found  by  Lord  Derby,  who  was  forthwith  commissioned  to  put  it 
into  application.  It  was  voluntary  compulsory  service.  What  does 
the  English  mind  care  about  the  absurdity  of  such  a  conception,  if 
it  works,  as  they  say,  if  it  gives  practical  results  ?  Voluntary  enlist- 
ment, so  called,  had  in  fact  already  become  almost  compulsory  through 
the  pressure  of  opinion,  through  the  application  of  well-nigh  irre- 
sistible influences  to  all  who  hesitated  or  refused.  It  only  remained 
for  the  state,  following  the  lead  of  the  general  public,  to  assume  over 
the  shirkers  certain  final  rights  and  powers  unrecognized  by  any 
statute  of  the  written  Constitution,  even  contrary  to  the  spirit  of  the 
unwritten  Constitution.  Observe  that  great  care  was  taken  not  to 
assert  these  rights  and  provoke  the  defenders  of  ancient  liberties  and 
traditions  by  proclaiming  a  new  principle.  The  English,  when  aiming 
at  practical  ends,  instinctively  feel  the  danger  and  futility  of  exciting 
passions  by  setting  up  a  new  principle  against  an  old.  It  is  by  silent 
and  gradual  pressure  that  the  state,  in  its  want  of  soldiers,  attempts 
to  extend  its  powers,  assuming  no  direct  responsibility,  taking  care 
not  to  commit  itself,  simply  authorizing  provisionally  a  certain  private 
citizen,  Lord  Derby,  until  then  quite  unconnected  with  the  govern- 
ment, to  exploit  a  certain  private  idea  of  his  own,  a  patent  system  of 
which  he  is  the  inventor. 

The  starting-point  of  the  new  system  was  the  National  Register, 
drawn  up  in  July,  the  chief  object  of  which  had  been  to  prepare  state 
control  over  the  individual  by  instilling  into  his  mind  the  idea  that 
the  community  has  a  right  to  the  service  of  each  of  its  members,  and 
that  such  service  may  be  exacted.  From  this  huge  catalogue  the 
local  committees  extracted  the  names  and  addresses  of  all  those  of 
military  age  and  transcribed  them  in  special  lists  (pink  forms} .  They 
form  a  class  apart;  the  state  has  not  seized  them,  but  the  state  is 
watching  them,  and  its  attitude  clearly  reveals  its  purpose.  Still 
the  class  of  men  who  are  wanted  is  not  yet  sufficiently  defined.  For 
the  fact  is  generally  known  that  the  government  does  not  want  to  stop 
all  the  manufactures  of  the  country;  it  wishes  England  to  go  on  as 
long  as  possible  producing  and  exporting  the  goods  which  will  enable 
her  to  meet  her  financial  obligations — greater  than  those  of  the  other 


214  ECONOMICS  OF  WAR 

belligerents  and  further  increased  by  loans  to  her  Allies.  It  is  there- 
fore easy  for  a  man  who  does  not  want  to  enter  the  army  to  persuade 
himself  that  he  is  supporting,  more  or  less  directly,  one  of  these  indis- 
pensable industries.  So  Lord  Derby  adopts  the  plan  of  marking  by  a 
star  placed  against  their  names  those  who  are  more  useful  in  their 
offices  or  workshops  than  at  the  war,  the  result,  of  course,  being  that 
the  others  feel  themselves  more  clearly  pointed  at  than  ever.  He  goes 
further  by  providing  with  an  armlet  all  those  who  have  passed  through 
the  recruiting  office,  as  a  visible  sign  of  their  accomplished  duty  and  a 
protection  against  public  censure — which  is  thereby  drawn  down  on 
those  who  do  not  wear  an  armlet.  More  significant  still — for  here 
the  compulsory  nature  of  the  system  first  clearly  shows  itself — special 
courts  are  created  to  decide  without  appeal  who  are  entitled  to  be 
"starred";  and  often  masters  are  seen  appealing  for  permission  to 
keep  a  clerk  or  workman  on  the  plea  that  he  cannot  be  spared.  Thus, 
for  every  Englishman  from  eighteen  to  forty,  Nelson's  order,  so  often 
quoted,  takes  on  an  ever  more  imperious  meaning.  It  is  no  longer, 
"England  expects  that  every  man  will  do  his  duty,"  but  England 
requests  every  man  to  do  his  duty;  and  the  summons  is  soon  so 
strongly  expressed,  so  insistently  repeated,  that  no  one  any  longer 
feels  free  to  neglect  it,  and  a  stronger  will  is  required  to  stand  back 
than  to  enlist.  Hitherto  the  government  had  left  everything  to  the 
propagandist  societies  and  committees;  now  it  speaks,  urges, 
threatens,  foreshadowing  drastic  action,  and  the  peculiar  tone  of  its 
language  shows  clearly  what  sort  of  men  it  is  addressing — the  so- 
called  shirkers  and  slackers,  who,  now  that  all  brave  men  have  enlisted, 
are  almost  looked  upon  as  defaulters.  "If  you  are  not  ready  to 
march,"  says  Lord  Kitchener  in  very  plain  words,  "until  you  are 
made  to,  where  is  the  merit  of  that  ?  Where  is  the  patriotism  ?  Are 
you  going  to  wait  to  do  your  duty  until  you  are  fetched?"  What  a 
difference  between  such  language,  which  almost  threatens,  and  the 
simple,  quiet  .words  which,  last  May,  placed  without  comment  the 
need  before  the  country,  leaving  each  man  to  judge  and  decide  for 
himself ! 

Almost  at  once,  to  increase  the  pressure,  the  demand  becomes  more 
personal,  not  in  the  figurative  fashion  of  posters  and  speeches,  which 
aimed  at  giving  each  man  the  feeling  that  he  was  personally  addressed, 
but  actually,  unceremoniously  calling  him  by  his  own  name,  hunting 
him  up  at  home,  pursuing  and  worrying  him  in  his  private  life. 


OBSTACLES  TO  RAPID  MOBILIZATION  215 

First  of  all  comes  a  private  letter  signed  by  Lord  Derby,  delivered  at 
the  man's  house,  to  impress  on  him  a  rigid,  simple  conception  of  duty 
and  dispel  beforehand  all  illusory  excuse  by  obliging  him  to  put  to 
himself  this  catechism:  "Am  I  doing  all  I  can  for  my  country? 
Would  the  reason  which  I  am  giving  for  absention  be  considered  valid 
in  a  country  where  there  is  universal  service  ?"  After  this  comes  an 
attempt  to  force  a  decision  by  notifying  the  date  after  which  choice 
will  no  longer  rest  with  him;  for  though  enlistment  is  still  supposed 
to  be  voluntary,  he  is  warned  that  if  he  does  not  enlist  he  will  at  a 
very  early  date  "be  fetched."  Whereupon  the  doorbell  rings  and  the 
canvasser  enters,  sent  by  the  local  voluntary  recruiting  committee. 
Like  the  members  of  the  committee  itself,  these  visitors  are  usually 
local  notabilities  above  military  age:  municipal  councillors,  clergy- 
men, dissenting  ministers,  merchants,  manufacturers,  presidents  and 
secretaries  of  trade  unions,  workmen,  election  agents  of  both  parties, 
officials  of  political  and  private  societies — and  each  makes  a  point  of 
calling  on  those  men  whom  he  knows  more  or  less  closely,  and  who  are 
supposed  to  be  open  to  the  visitor's  influence,  for  the  whole  process 
is  direct,  living,  and  human.  If  the  man  is  not  at  home,  the  orders 
are  to  keep  on  coming  until  he  is  found,  to  tackle  him  by  asking  and 
discussing  the  reasons  of  his  resistance,  by  talking  to  him  of  allowances 
and  pensions,  after  which,  if  the  result  is  negative,  a  fresh  start  is  to 
be  made,  this  time  indirectly,  by  trying  to  put  pressure  upon  him 
through  his  family,  his  friends,  or  his  employer.  This  employer  is 
sometimes  the  head  of  a  government  department.  In  that  case  he 
has  not  waited  to  act.  Finally  a  list  is  drawn  up  of  the  decidedly 
intractable,  which  looks  very  much  like  a  roll  of  dishonour,  and  those 
who  base  their  refusal  on  religious  reasons,  as  in  Russia  the  Doukho- 
bors,  are  in  a  truly  pitiable  position.  In  the  presence  of  such  pro- 
ceedings one  can  understand  the  exclamation  of  a  speaker  at  a  meeting 
of  the  No-Conscription  Fellowship.  "Better,"  he  cried,  "legal 
compulsion!"  to  which,  of  course,  an  Englishman  can  always,  if  it  be  a 
question  of  defending  his  conscience,  honourably  offer  passive  resist- 
ance. Yes,  the  heavy  hand  of  the  policeman,  prison  itself,  where  a 
conscientious  objector  can  assume — like  those  in  old  times  who 
refused  to  pay  ship  money — the  halo  of  sacrifice  and  almost  of  martyr- 
dom, are  better  than  this  continual,  nameless  persecution,  which, 
whilst  pretending  to  respect  your  liberty,  tries  to  damage  your 
character.  Besides,  the  man  feels  that,  in  fact,  he  is  already  no  longer 


2l6  ECONOMICS  OF  WAR 

free;  he  has  but  the  choice  between  an  act  which  they  still  deign  to 
call  voluntary,  and  an  act  which  will  be  exacted  from  him  in  a  few 
months,  or  weeks,  by  the  law,  and,  in  case  of  refusal,  by  the  police. 
At  the  end  of  November  the  state  feels  so  sure  of  its  right  to  the 
person  of  every  fit  man  for  the  defence  of  the  country — a  right,  mark 
you,  not  yet  put  forward  by  the  statute — and  is  so  certain  of  public 
opinion  that  it  takes  that  right  tacitly  for  granted,  at  least  in  the  case 
of  the  unmarried  men,  by  suddenly  forbidding  them  to  leave  the 
country.  Till  that  moment  appearances  had  been  preserved  and  it 
could  still  be  said  that  only  a  voluntary  act  had  been  requested  with 
greater  and  greater  urgency.  Theoretically,  at  all  events,  "liberty 
of  the  subject "  was  still  intact.  But  when  policemen  prevent  English- 
men from  boarding  a  steamer  bound  for  a  foreign  port,  conscription 
or  no,  a  new  principle  is  being  applied — a  new  epoch  begins  in  the 
history  of  this  nation. 

That  last  measure  affected  only  the  unmarried  men.  The  fact 
is,  that  by  these  essentially  English  methods  which  respected  familiar 
forms  and  formulas  whilst  emptying  them  of  their  ancient  contents 
in  order  to  fill  them  cautiously  with  an  opposite  meaning,  solutions 
were  being  arrived  at  no  less  peculiarly  English — solutions,  that  is, 
fragmentary,  special  to  the  case,  and  hi  the  nature  of  a  compromise — 
solutions  in  which  the  new  principle  is  present,  but  hardly  expressed, 
laying  no  claim  to  absolute  truth,  and  thus  avoiding  challenge  to  the 
defenders  of  the  old  principle.  Conscription — perhaps;  but  first 
only  for  this  limited  class;  or,  later  on,  indirect  compulsion  through 
the  intervention  of  the  local  authorities,  such  as  requisition  of  a 
certain  number  of  soldiers  from  every  town  and  county  on  the 
supposed  authority  of  obsolete  laws  suddenly  unearthed. 

XX.    The  Position  of  the  Press1 

The  power  of  the  press  for  good  or  for  evil  is  proverbial.  In 
connection  with  the  mobilization  of  our  resources  for  war  the  press 
of  the  country  has  for  the  most  part  worked  at  cross-purposes  with 
national  requirements  and  with  the  explicit  desires  of  the  government. 
This  is  a  strong  statement,  and  it  needs  qualification  as  well  as  explana- 
tion. It  needs  qualification  in  that  the  newspapers  and  magazines 
have  been  indispensable  aids  for  the  dissemination  of  information  as 
to  the  causes  of  the  war,  and  indispensable  also  in  giving  publicity 

1  An  editorial. 


OBSTACLES  TO  RAPID  MOBILIZATION  217 

in  connection  with  our  numerous  Liberty  Loan  and  Liberty  Savings 
campaigns.  The  explanation  of  the  statement  above  is  to  be  found 
in  the  attitude  of  the  press  of  the  country  toward  the  advertising  of 
luxuries  and  nonessentials  generally. 

The  newspapers  and  magazines  are  at  all  times  largely  dependent 
for  their  financial  support  upon  advertising  copy.  This  advertising 
is,  moreover,  largely  in  the  field  of  luxuries,  because  the  staple 
lines  of  necessities  require  relatively  little  advertising.  In  time  of 
war  the  move  for  economizing,  which  sooner  or  later  develops, 
appears  to  necessitate,  on  the  part  of  individual  manufacturers 
and  dealers  in  luxuries,  increased  advertising  as  a  means  of  checking 
a  retrenchment  of  consumption  which  would  mean  to  them  a  loss 
of  profits.  It  is  a  very  natural  impulse  for  the  individual  who  finds 
his  sales  declining  to  try  to  check  such  decline  by  convincing  the 
public  that  it  is  important  for  the  nation  that  his  industry  be  con- 
tinued— in  order  that  the  necessary  revenue  may  be  available  for 
government  purposes.  It  is  easy  to  understand  also  that  the  news- 
papers, which  so  largely  depend  upon  advertising  of  luxuries  for  their 
financial  support,  should  hesitate  to  refuse  advertisements  of  such 
commodities.  Indeed  the  increased  advertising  that  war  occasions 
appears  as  a  godsend  to  the  newspapers,  whose  costs  of  manu- 
facturing, as  well  as  news  service,  is  tremendously  increased  under 
war  conditions. 

As  a  result  of  the  situation  thus  outlined  we  find  that  the  press  of 
the  country  not  only  has  advertised  luxuries  and  nonessentials  of  every 
description  continuously  since  the  war  started,  but,  until  very  recently 
in  this  country,  has  been  in  its  editorial  columns  a  strong  opponent 
of  economizing  and  an  ardent  proponent  of  the  doctrine  of  business 
as  usual.  The  gravity  of  the  problem  is  revealed  by  the  fact  that  one 
of  the  largest  publishing  companies  in  New  England  refused  in  March, 
1918,  to  print  a  quarter-page  advertisement  consisting  of  quotations 
from  President  Wilson,  Treasurer  McAdoo,  and  the  chairman  of  the 
War  Savings  Committee,  which  urged  economizing  as  a  matter  of 
national  importance,  after  having  contracted  to  run  such  advertise- 
ment for  four  days  and  having  already  carried  out  one-half  of  its 
contract.  On  April  12  this  publishing  company  settled  with  the 
inserter  of  the  advertisement  for  a  breach  of  contract  by  paying  $500 
damages.  The  circumstantial  evidence  of  the  case  is  that  the  adver- 
tisers of  nonessentials  controlled  the  policy  of  the  publishing  company 


218  ECONOMICS  OF  WAR 

and  exercised  its  control  to  the  extent  of  excluding  from  its  advertising 
pages  official  statements  on  the  subject  of  economizing.  It  is  not 
putting  it  too  strongly  to  say  that  for  the  first  year  of  the  war  the  press 
of  the  United  States  stood  almost  unanimously  opposed  to  the  curtail- 
ment of  nonessential  production — implicitly  if  not  explicitly. 

However  much  we  may  sympathize  with  the  position  of  the  press 
occasioned  by  their  unfortunate  dependence  upon  the  advertising  of 
luxuries,  we  must  nevertheless  set  it  down  as  one  of  the  strongest 
obstacles  to  a  rapid  mobilization  of  our  industries.  '  A  government- 
controlled  press  would  have  early  centered  upon  the  newspapers  as 
one  of  the  more  effective  agencies  ^ or  the  preaching  of  thrift.  A 
democratic  press,  by  the  very  nature  of  our  institutions,  can  be  coerced 
in  the  support  of  government  requirements  in  opposition  to  its  own 
pecuniary  interests  only  after  many  months,  if  not  years,  of  war 
experience. 

XXI.    Working  at  Cross-Purposes 
i.    WHY  AMERICA  LAGS1 

The  different  branches  of  our  government  and  administration 
are  not  in  the  habit  of  working  together.  We  took  over  from  an  age 
of  despotism  the  conception  of  the  government  as  a  potential  enemy, 
which  we  had  to  divide  in  order  to  conquer.  Our  administrative 
departments,  to  be  sure,  are  directly  dependent  on  the  president,  and 
in  specific  cases  might,  by  his  order,  be  made  to  work  together.  But 
in  practice  they  do  not  work  together  regularly  and  smoothly.  If  you 
want  to  know  what  is  being  done  about  a  certain  matter  you  may  find 
some  preparation  for  action  going  on,  we  will  say,  in  the  Navy  Depart- 
ment, the  Shipping  Board,  and  the  Tariff  Commission;  but  you  are 
unlikely  to  find  that  one  branch  knows  what  is  going  on  in  the  others. 
Those  who  were  in  Washington  when  the  British  experts  first  arrived 
will  recall  the  chance  expressions  of  bewilderment  that  escaped  them. 
They  had  exceedingly  important  information  to  communicate,  but 
nobody  could  tell  them  where  to  communicate  it,  nor,  when  they  had 
enlightened  one  apparent  authority,  had  they  any  guaranty  that  the 
information  would  be  transmitted  to  other  authorities  equally  in 
need  of  it. 

While  the  Food  Administration  arranges  with  the  Chicago  packers 
to  place  limits  upon  the  charges  they  might  otherwise  make  in  war 

1  By  Alvin  Johnson  (see  p.  43) .  Adapted  from  "  Why  America  Lags,"  Unpopu- 
lar Review  (April-June,  1918),  pp.  228-32.  Copyright  by  the  Unpopular  Review. 


OBSTACLES  TO  RAPID  MOBILIZATION  2IQ 

* 

time,  the  Department  of  Justice  serenely  proceeds  to  prosecute  the 
same  packers  for  violations  of  the  Sherman  Law  dating  back  to  peace 
times.  One  would  suppose  that  an  arrangement  might  have  been 
made  by  which  Mr.  Hoover  could  use  the  Department  of  Justice  as 
a  club.  "We  have  the  goods  on  you:  now  cooperate  with  us  faith- 
fully in  this  war  emergency  or — ."  But  no;  Mr.  Hoover  asks  the 
packers  to  cooperate,  and  Mr.  Gregory  prosecutes  them. 

Labor  in  the  Northwest  is  pretty  well  infiltrated  with  I.W.W. 
ideals.  That  may  be  a  pity,  but  it  is  true.  If  we  want  spruce  for 
aeroplanes  or  fir  for  ships,  if  we  want  ships  built  on  Puget  Sound — 
and  heaven  knows  we  want  ships  built  at  every  point  from  which 
they  can  float  to  deep  water — we  have  to  employ  I.W.W.  men  and 
their  sympathizers.  And  it  is  worth  noting  that  those  I.W.W. 
laborers  have  done  important  pieces  of  our  war  work  in  record  time. 
The  actual  producers  have  found  it  not  impossible  to  do  business  with 
men  of  I.W.W.  leanings  and  to  get  them  to  agree  to  sink  their  private 
predilections  for  sabotage  for  the  country's  good.  And  while  the 
employers  of  labor  were  achieving  this  unexpected  result  the  Depart- 
ment of  Justice  fell  upon  the  I.W.W.  leaders  with  indictments  for 
conspiracy.  Believe  what  you  will  against  these  I.W.W.  leaders; 
many  of  them  were  to  be  counted  on  to  hold  labor  in  line,  and  the  rank 
and  file  of  workers  in  sympathy  with  the  organization  now  feel  sus- 
picious of  the  government  and  all  its  works. 

Anyone  who  has  observed  the  concrete  details  of  our  administra- 
tive blunderings  must  recognize  that  what  chiefly  ails  our  government 
is  not  the  character  of  Mr.  Baker,  of  Mr.  Daniels,  of  Mr.  Gregory,  or 
of  Mr.  Houston,  not  the  competence  of  the  personnel  of  the  Interstate 
Commerce  Commission,  or  the  Shipping  Board,  or  the  Food  or  Fuel 
Administration,  nor  the  character  of  the  president  himself,  but  a 
system  that  divides  our  administration  into  water-tight  compart- 
ments, and  makes  not  only  common  action  impracticable,  but  con- 
flicting action  inevitable.  Under  our  administrative  system,  as  it 
now  stands,  the  cabinet  is  not  a  body  endowed  with  joint  respon- 
sibility, but  an  association  of  independent  chiefs  with  only  the 
president's  volition,  sporadically  exercised,  to  hold  them  together. 
On  any  particular  matter  involving  the  cooperation  of  more  depart- 
ments than  one,  the  several  chiefs  may  indeed  work  out  a  common 
plan,  and  they  do  this,  in  fact,  with  sufficient  regularity  to  keep  the 
country's  business  from  breaking  down  altogether.  But  no  single 
chief  or  group  is  responsible  for  taking  the  initiative  toward  common 


220  ECONOMICS  OF  WAR 

action,  and  if  a  dominant  personality  in  the  cabinet  attempted  this  he 
would  straightway  be  suspected  of  a  purpose  of  personal  aggrandize- 
ment and  would  meet  with  stubborn  resistance  from  the  other  chiefs 
and  their  departments.  Let  it  also  be  remembered  that  the  functions 
of  the  several  departments  are  fixed  by  the  laws  constituting  them, 
and  that  any  attempt  on  the  part  of  a  dominant  personality  in  the 
cabinet  to  override  the  wishes  of  his  colleagues  respecting  their  proper 
fields  would  be  bound  to  fail. 

We  shall  get  nearer  to  the  heart  of  the  matter  if  we  will  examine 
in  detail  some  concrete  problem  of  war  administration.  Let  us  take 
the  railway  service  as  an  example.  When  we  entered  the  war  it  was 
plain  that  a  tremendous  strain  would  be  placed  upon  the  railways. 
They  had  to  prepare  themselves  to  move  great  masses  of  material 
for  the  construction  of  camps,  and  to  transport  hundreds  of  thousands 
of  soldiers,  some  over  distances  running  into  thousands  of  miles. 
They  had  to  keep  munitions  and  supplies  for  our  Allies  moving,  and 
to  meet  more  promptly  than  ever  our  pressing  civil  needs.  This 
meant  that  the  railways  had  to  work  as  nearly  as  possible  as  a  single 
organic  unit.  And  under  the  Railways  War  Board  they  honestly 
tried  to  do  this. 

But  while  they  tried  to  work  as  an  operating  unit,  they  could  not 
work  as  a  financial  unit.  They  could  not  make  whatever  operating 
arrangements  would  best  meet  the  country's  needs  and  take  their 
earnings  out  of  a  common  pool.  This  would  have  been  to  violate  the 
anti-pooling  law,  and  any  move  in  this  direction  would  have  brought 
the  Department  of  Justice  about  their  ears.  They  could  not  make 
their  arrangements  with  the  expectation  that  any  road,  part  of  whose 
traffic  was  diverted  to  lines  that  could  handle  it  more  expeditiously, 
could  recoup  itself  by  higher  rates  on  the  remaining  traffic;  this 
would  have  been  to  run  afoul  of  the  Interstate  Commerce  Commission. 
There  were  possibilities  of  relieving  the  railways  of  less-than-carload 
freight  through  development  of  freight  service  on  electric  lines  and 
corresponding  reduction  of  passenger  service,  but  here  the  juris- 
diction of  state  public-service  commissions  would  have  been  involved. 
It  would  have  been  possible  to  throw  much  necessary  freight  to  lake 
and  coastwise  shipping  devoted  to  carriage  that  might  have  been 
dispensed  with,  but  such  an  arrangement  required  the  cooperation  of 
the  Shipping  Board.  Finally  the  roads  might  have  discriminated 
in  favor  of  essential  shipments  and  against  unessential  ones,  but 
to  do  this  on  their  own  account  would  have  been  in  contravention  of 


OBSTACLES  TO  RAPID  MOBILIZATION  221 

the  Interstate  Commerce  Commission  Law.  They  did,  in  fact, 
discriminate  in  favor  of  shipments  endowed  by  the  executive  depart- 
ments with  the  priority  quality;  but  when  the  War  Department,  the 
Navy  Department,  the  Food  Administrator,  the  Fuel  Administrator, 
were  issuing  priority  orders  without  reference  to  one  another,  what 
headway  could  the  railways  make  against  the  confusion?  The 
voluntary  railway  organization,  being  human,  failed  of  its  purpose. 

Any  concrete  problem  of  industrial  mobilization,  as  the  foregoing 
example  indicates,  involves  the  coordination  of  many  branches  of  the 
government.  The  railways  could  have  operated  successfully  as  a 
unit  if  they  could  have  induced  Congress,  the  Department  of  Justice, 
the  Interstate  Commerce  Commission,  the  state  public-service  com- 
missions, the  Shipping  Board,  the  Army  and  Navy,  and  the  Fuel  and 
Food  administrations  to  work  together. 

2.    A  NATION  OF  ECONOMIC  AMATEURS1 

The  problems  which  faced  our  national  leaders  upon  our  entry 
into  the  war  were  literally  staggering.  A  nation  whose  whole  tra- 
dition was  one  of  peace  was  to  be  placed  in  the  physical  and  mental 
attitude  to  wage  war.  Its  human  and  industrial  resources  were  to 
be  reorganized  to  meet  the  drains  of  war.  For  the  direction  of  these 
tasks  there  was  a  pitifully  inadequate  staff  of  officials — inadequate 
in  numbers,  in  training,  in  outlook,  and  in  authority — who  had  not 
even  had  in  proper  measure  the  advantages  flowing  from  preliminary 
planning. 

Under  the  circumstances,  it  is  not  surprising  that  much  industrial 
confusion  attended  our  efforts.  Conditions  in  the  Ordnance  Depart- 
ment2 may  be  taken  as  an  example  of  the  difficulties  involved.  At  the 
outbreak  of  the  war  this  department  had  on  duty  nine  commissioned 
officers  at  Washington  and  a  total  of  ninety-seven  in  the  entire 
country.  Its  peace-time  expenditures  had  been  about  $13,000,000 
per  annum.  From  this  nucleus  there  was  developed  in  one  year  a 
staff  at  Washington  consisting  of  3,000  officers,  1,700  enlisted  men, 
and  9,200  civilians,  with  a  total  of  5,000  officers  in  this  country  and 

1  By  L.  C.  Marshall  (see  p.  180).    Adapted  from  "The  War  Labor  Program 
and  Its  Administration,"  Journal  of  Political  Economy,  XXVI  (May,  1918),  425-28. 

2  The  conditions  in  the  Ordnance  Department  were  of  course  not  peculiar. 
The  Quartermaster  Corps,  the  Signal  Corps,  the  Medical  Corps,  the  Navy,  the 
Shipping  Board,  and  all  our  other  so-called  production  departments  could  recount 
a  story  substantially  like  that  of  the  Ordnance  Department. 


222  ECONOMICS  OF  WAR 

abroad.  This  mushroom  staff  had  charge  of  direct  appropriations 
and  contract  authorizations  amounting  to  several  billions  of  dollars; 
it  set  up  the  mechanism  for  controlling  the  production  of  this  quantity 
of  material  (for  of  course  it  could  not  be  procured  on  the  open  market 
and  its  production  had  to  be  supervised);  it  provided  the  adminis- 
trative forces  for  storing  and  handling,  both  in  this  country  and 
abroad,  the  material  when  it  had  been  produced  and  delivered.  The 
enterprise  was  conducted  in  a  fashion  that  was,  upon  the  whole, 
admirable.  Men  could  not  be  trained  overnight,  but  able  engineers 
and  business  executives  were  called  into  th'e  service,  assigned  to  duties 
in  the  various  divisions  of  the  work,  given  a  considerable  range  of 
authority,  and  held  responsible  for  results. 

Admirable  as  was  the  approach  of  our  higher  officials  to  the 
problem  placed  before  them,  defects  in  operation  resulted  from  insuf- 
ficient planning  and  from  the  impossibility  of  training  subordinates 
properly  in  the  time  available.  It  would  be  an  unpardonable  injustice 
to  assert  that  the  programs  of  the  production  departments  were 
carried  out  with  little  planning.  No  one  who  came  into  contact  with 
the  overburdened  officials  responsible  for  the  execution  of  these  pro- 
grams would  make  such  an  assertion.  It  is  true,  however  (through 
little  fault  of  theirs),  that  their  planning  was  hastily  done  and  was  not 
well  co-ordinated.  Each  production  department  and  indeed  each 
subdivision  of  each  production  department  plunged  into  the  execution 
of  the  task  assigned  to  it,  knowing  little,  and  often  caring  less,  how 
its  actions  would  affect  the  execution  of  the  programs  of  others.  The 
officers  in  charge,  particularly  the  subordinates,  saw  no  other  course 
open  to  them.  They  had  been  trained  in  our  school  of  individualistic 
enterprise  where  "results"  counted — "results,"  however,  which  did 
not  depend  upon  national  team  work,  since  the  projects  involved  did 
not  demand  the  effective  utilization  of  all  the  resources  of  the  nation. 
The  country  demanded  "results."  In  the  absence  of  co-ordinating 
supervision  at  the  top  it  seemed  clear  to  the  average  production  officer 
that  his  patriotic  mission,  to  say  nothing  of  his  chances  of  preferment 
and  promotion,  began  and  ended  in  his  "pushing  his  own  program 
through."  And  he  had  a  reputation  as  a  "pusher."  He  was  the 
veritable  "he-man"  so  popular  in  Washington  dispatches.  He  had 
superlative  contempt  for  the  "  super-co-ordinator "  who  dared  ask 
whether  the  nation's  interests  did  not  require  studies  in  priority  and 
carefully  balanced  production.  Furthermore,  this  "pusher"  was 
almost  certain  to  have  accepted  the  prevailing  fallacy  that  the  expendi- 


OBSTACLES  TO  RAPID  MOBILIZATION  223 

ture  of  dollars  rather  than  materials  would  win  the  war.  He  accord- 
ingly placed  his  emphasis  on  grinding  out  contracts  for  vast  quantities 
of  materials — an  emphasis  which  the  contractors  themselves  were  not 
averse  to  stimulating.  Under  such  conditions  one  can  well  believe 
that  carloads  of  hull  paint  were  delivered  at  shipyards  where  the  ways 
had  not  yet  been  laid  on  which  the  hulls  were  to  be  constructed.  The 
nation's  resources,  unadjusted  as  they  were,  could  not  adequately 
meet  such  haphazard  demands. 

The  confusion  resulting  from  the  apotheosis  of  the  Great  American 
Pusher  was  accentuated  by  difficulties  arising  from  another  quarter. 
Since  there  was  little  or  no  guidance  from  the  top,  since  the  industries 
and  labor  resources  of  the  country  had  never  been  effectively  cata- 
logued and  classified  for  military  purposes,  since  war  contracts  of 
European  nations  had  been  centered  in  certain  districts,  and  since  the 
successful  business  managers  and  engineers  called  into  the  government 
service  came  mainly  from  the  industrial  districts  of  the  country,  the 
outcome  of  the  zeal  of  the  contracting  officers  was  a  tremendous 
concentration  of  contracts.  When  stock  could  be  taken  of  the 
situation1  it  was  discovered  that,  aside  from  the  contracts  of  the 
Shipping  Board,  one-fourth  of  all  the  government  contracts  for  war 
purposes  had  been  located  in  the  state  of  New  York  alone,  one-half 
in  three  states  (New  York,  Pennsylvania,  and  Ohio),  and  three-fourths 
in  seven '  states  (New  York,  Pennsylvania,  Ohio,  Massachusetts, 
Illinois,  New  Jersey,  and  Connecticut).  A  greater  dispersion  existed 
in  the  case  of  the  Shipping  Board  contracts  because  the  vessels  them- 
selves were  to  be  built  all  along  our  deep  waterways.  It  is  not 
improbable,  however,  that  the  contracts  for  accessories  needed  in 
shipbuilding  showed  a  somewhat  similar  concentration,  and  the 
general  belief  is  that  the  contracts  of  our  Allies  were  quite  as  heavily 
concentrated. 

The  war-industry  districts  arising  from  this  concentration  of 
contracts  rapidly  extended  existing  plants  and  built  new  ones.  They 
reached  out  to  the  rest  of  the  nation  for  materials,  money,  and  men. 
They  required  that  scores  of  thousands  of  workers  be  transferred  to 
them  from  districts  where  war  work  was  not  being  done.  Then 
followed  a  tremendous  congestion  of  transportation  facilities — a 

1  It  is  an  illuminating  fact  that  this  stock  was  not  taken  by  the  production 
departments  themselves.  The  Statistics  Division  of  the  Council  of  National 
Defense,  headed  by  Dr.  Leonard  P.  Ayres,  was  the  "outside"  agency  which  found 
time  and  opportunity  to  study  what  had  been  done  and  to  report  the  facts. 


224  ECONOMICS  OF  WAR 

congestion  that  was  later  to  play  its  part  in  causing  the  issuance  of  a 
so-called  fuel  order  which  was  really  an  order  to  relieve  an  "industrial 
jam." 

3.    THE  NEED  FOR  CO-ORDINATION1 

When  the  War  Department  wants  another  ship  (and  it  always 
wants  another  ship)  young  Mr.  Ewing  plunges  into  his  data  and  drags 
that  ship  out  from  a  trade  here  or  from  a  trade  there  and  knows  pretty 
well  just  what  he  is  doing,  because  he  has  built  a  thorough  apparatus 
for  doing  it.  His  is  one  of  the  marvelously  extemporized  business 
machines  which  we  owe,  in  certain  sections  and  sub-sections  of  our 
departments,  to  our  new  business  recruits. 

But  the  withdrawing  of  ships  from  their  present  routes  is  not  a 
matter  which  is  only  a  shipping  matter.  It  is  also  an  exports-and- 
imports  matter,  an  international-trade-strategy  matter.  What  has 
the  Shipping  Board  to  do  with  international  trade  strategy?  This 
question  has  been  answered  in  a  manner  in  which,  again,  some  people 
might  think  that  a  certain  tardiness  is  discernible. 

On  June  15,  in  the  "Espionage"  Act,  Congress  authorized  the 
President  to  exercise  a  certain  control  over  exports.  On  August  21 
the  President  confided  this  control  to  the  "Exports  Administrative 
Board,"  established  for  the  special  purpose  of  exercising  it.  But  it  is 
impossible  to  imagine  an  effective  and  useful  control  of  exports  in  any 
particular  unless  it  is  conducted  in  harmony  with  a  control  of  imports. 
Mr.  Hoover,  for  instance,  wishes  to  import  cocoanut  oil,  palm  oil,  and 
soya  bean  oil  to  serve  as  a  supplement  and  as  a  substitute  for  our 
native  cooking  fats.  If  we  are  going  to  Import  such  things  in  increased 
quantities  we  must,  for  that  reason  alone,  import  certain  other  things 
in  decreased  quantities,  and  we  must  then  send  exports,  in  payment 
for  our  imports,  to  the  places,  if  we  can,  from  which  our  imports  are 
actually  coming.  Therefore  a  control  of  imports,  simultaneously 
and  concertedly  with  a  control  of  exports,  was  inevitable,  and  it 
arrived,  exactly  six  months  after  our  declaration  of  war,  on  October  6, 
in  the  "Trading  with  the  Enemy"  Act.  Pursuant  to  that  act,  on 
October  12,  the  President  established  a  "War  Trade  Board,"  which 
took  over  the  duties  of  the  "Exports  Administrative  Board"  and 
which  is  now  our  one  central  authority  for  all  licensing,  actual  and 

1  By  William  Hard.  Adapted  from  the  New  Republic,  XIII  (November  3  and 
10,  1917),  ii  ff.  and  40  ff. 

ED.  NOTE. — William  Hard  is  a  well-known  journalist,  author  of  many 
articles  on  war  problems. 


OBSTACLES  TO  RAPID  MOBILIZATION  22$ 

prospective,  of  exports  and  imports  both,  and  which  is  therefore 
bound  to  be  our  one  compelling  center  of  information  and  of  final 
expert  guidance  with  regard  to  our  overseas  trade. 

Here,  then,  are  two  bodies  which  must  work  in  harmony  in  the 
mobilizing  of  our  merchant  fleet  and  in  the  adjusting  of  our  com- 
merce. Who  is  it  that  the  Shipping  Board  reports  to  ?  The  Presi- 
dent. Who  is  it  that  the  War  Trade  Board  reports  to?  It  repre- 
sents, in  theory,  in  its  six  members,  six  departments  of  government: 
state,  agriculture,  commerce,  treasury,  shipping,  and  food.  Having 
six  masters  it  will,  in  practice,  have  none,  short  of  the  President.  It 
can  justly  be  regarded  as  one  more  department,  outside  the  cabinet 
departments,  reporting  to  the  President  alone.  When,  therefore,  the 
Shipping  Board  has  one  policy  and  the  War  Trade  Board  has  another 
policy  (a  case  which  is  certain  to  occur  because  it  occurs  continuously 
between  every  two  departments  having  anything  to  do  with  each 
other),  the  conflict  will  get  settled  only  in  one  of  the  two  ways  in  such 
cases  now  established  and  provided.  One:  it  will  drag  on  and  on, 
without  the  President,  through  telephone  conversations  and  luncheons 
and  dinners  and  improvised  conferences  between  the  departments 
concerned,  until  a  state  of  unanimous  concessive  consent  is  reached. 
Two:  it  will  drag  itself  in  pieces,  in  an  ex  parte  statement  by  one 
combatant  and  in  an  ex  parte  statement  from  the  other  combatant, 
to  the  White  House.  Most  people  do  not  resort  to  the  second  way 
until  they  have  tried  for  a  very  long  time.  They  naturally  do  not 
want  to  "bother  the  President."  The  President  therefore  often  gets 
blamed  for  delays  of  which  he  has  no  knowledge.  The  departments 
also  get  blamed.  But  what  can  they  do?  They  have  their  choice 
between  "bothering  the  President"  and  pursuing  that  sum  and 
climax  of  all  administrative  difficulty  and  dilatoriness — unanimous, 
concessive,  inter-departmental  consent.  Administratively  it  is  pre- 
cisely what  the  old  Diet  of  Poland  used  to  be  legislatively.  The 
liberum  -veto  of  one  department  can  stalemate  a  whole  game  of  action. 

But  the  Shipping  Board  and  the  War  Trade  Board  are  not  the 
only  departments  concerned  in  the  matter  now  before  us.  There  is 
also  the  Navy  Department,  which  wants  many  ships  for  auxiliary 
purposes;  and  there  is  also  the  War  Department,  which  wants  more 
and  more  ships  for  its  army  in  France.  The  War  Department,  most 
especially,  must  be  considered.  The  ship  that  Mr.  Hurley  is  going 
to  transfer  from  tropical  waters  to  the  waters  of  the  northern  Atlantic, 
shall  it  simply  go  into  the  carrying  of  war  supplies  to  the  war-bound 


226  ECONOMICS  OF  WAR 

populations  of  France  or  Italy,  or  shall  it  be  commandeered  to  the 
special  immediate  war  aims  of  the  American  War  Department  ? 
Can  Mr.  Hurley  decide  this  question  ?  Can  Mr.  Vance  McCormick, 
head  of  the  War  Trade  Board  ?  Can  Mr.  Baker  ?  Mr.  Baker,  like 
every  Secretary  of  War  in  the  world,  must  regard  the  needs  of  his 
army  as  being  supremely  pressing.  History  will  not  blame  him  if  we 
lose  our  sewing-machine  trade  with  the  Brazilians.  History  will  most 
distinctly  blame  him  if  his  army  is  not  clothed  and  fed  and  munitioned 
to  the  last  boot  and  the  last  dried  pea  and  the  last  shell.  The 
disposition  of  that  ship  will  require  a  unanimous  consent  in  which 
Mr.  Baker's  voice  must  be  given  a  large  range  and  in  which  the  subject 
of  the  resources  of  our  merchant  fleet  and  the  subject  of  our  present  and 
future  overseas  trade  and  the  subject  of  our  military  efforts  in  Europe 
must  reach  a  combined  consideration  and  a  maritime,  commercial, 
military,  strategic  balance.  There  is  no  body  of  men  constituted  to 
strike  that  balance.  There  is  no  body  of  men  responsible  for  striking 
it  wrongly  or  for  striking  it  too  late.  And  even  if  Mr.  Baker  and 
Mr.  Vance  McCormick  and  Mr.  Hurley  should  set  themselves  up,  of 
their  own  motion,  to  be  a  board,  meeting  daily,  to  strike  it  and  to  take 
the  responsibility  for  striking  it,  they  could  not  do  it,  because  it 
involves  considerations  far  beyond  even  their  combined  proper 
authority.  That  ship  which  is  to  be  transferred,  should  it  not  be 
assigned  to  the  French  instead  of  to  Mr.  Baker  ?  Or  to  the  Italians  ? 
Here  tremendous  questions  emerge,  questions  transcending  all  ques- 
tions maritime  or  commercial  or  military,  questions  in  the  realm 
of  the  highest  international  political  world-settlement  policy. 

Is  it  surprising  then  that  the  French  did  not  succeed  in  getting  us 
to  assign  to  them  that  80,000  tons  of  new  shipping  and  that  they  did 
not  succeed  in  striking  a  bargain  with  us  for  giving  us  a  lot  of  their 
existing  sailing  tonnage  in  just  exchange  for  a  half-lot  of  our  existing 
steaming  tonnage  till  after  many  weeks  of  running  from  one  authority 
to  another  authority  in  Washington,  and  till  after  their  one  million 
tons  of  stranded  materials  on  the  American  shore  had  become  a  staple 
topic  of  dinner-table  conversations  throughout  Washington,  and  till 
after  cablegrams  actually  had  been  received  from  American  military 
men  and  American  naval  men  on  the  other  side  of  the  Atlantic  pleading 
for  six  tugs  or  something  for  the  hard-pressed  warriors  of  the  French 
Republic  ?  It  is  not  too  much  to  say  that  the  representations  of  the 
French  on  this  subject,  candid  representations,  perfectly  legitimate 
representations,  had  reached  almost  a  world-wide  scope  in  the  ears 


OBSTACLES  TO  RAPID  MOBILIZATION  227 

of  American  administrators,  and  politicians,  and  journalists,  and 
military  and  naval  personages  before  the  moment  of  decision  came. 
The  interval  between  the  moment  of  first  representations  and  the 
moment  of  final  orders  was  really  scandalous.  Let  us  assume  that 
the  final  orders  were  right.  They  were  reached  in  weeks,  when  all  the 
facts  were  known  in  days.  Yet  where  is  the  incompetency  of  any 
individual?  Nowhere.  Is  it  for  Mr.  Hurley  to  be  ready  off-hand 
to  determine  the  partition  of  war  effort  between  France  and  Italy  and 
the  United  Srates  ?  Is  it  for  Mr.  Baker  ?  Is  it  for  any  other  depart- 
mental head  ?  Certainly  not.  Therefore  it  passed  through  a  long 
stage  of  amicable  jostling  between  departmental  heads,  and  then  it 
passed  through  another  long  stage  of  attempted  appeals,  from  all 
conceivable  quarters,  to  the  much-harassed  occupant  of  the  White 
House,  and  then  it  got  settled  either  by  a  belated  verdict  from  the 
White  House  or  by  a  desperate  impulse  from  Mr.  Hurley  or  by  a  sort 
of  general  tired  "Oh-let-them-have-that-8o,ooo-tons"  feeling  or,  more 
realistically,  by  an  intricate  incalculable  combination  of  those  three 
natural  developments. 

In  this  way  we  can  win  the  war.  In  this  way  we  cannot  win  the 
war  with  a  maximum  of  speed  and  a  minimum  of  killed  and  mangled. 
Therefore  people  say:  "In  order  to  do  every  day's  work  on  that  day 
and  not  several  weeks  later,  let  us  have  a  Grand  Priority  Board  which 
shall  determine  a  policy  in  tonnage  and  lay  it  down  for  everybody." 
Very  good.  Let  us  go  on  to  see  what  such  a  Grand  Priority  Board 
would  mean. 

Let  us  suppose  that  our  "Grand  Priority  Board"  starts  out  to  do  it. 
The  first  step  it  takes  is  to  present  its  recommendations,  together  with 
its  data  on  which  its  recommendations  are  based,  to  the  President. 
His  approval  is  manifestly  necessary.  The  Board  may  be  unanimous 
in  its  recommendations.  It  may  not  be  unanimous.  That  would 
make  no  difference.  It  would  present  a  report,  jointly,  as  a  Board, 
as  an  impartial  and  supreme  Board,  with  all  rival  claims  analyzed 
and  with  various  courses,  or  one  course,  of  action  suggested.  The 
President  would  select,  modify,  approve.  The  gain,  the  inestimable 
gain,  would  be  this:  the  will  of  the  President  would  be  informed  by  a 
group  of  men  concertedly  responsible  for  formulating  impartial  and 
supreme  policies  and  concertedly  responsible  thereafter  for  executing 
them. 

But  have  we  not  a  Council  of  National  Defense?  We  have. 
That  is,  we  have  a  thing  called  a  Council  of  National  Defense.  But 


228  ECONOMICS  OF  WAR 

this  thing  has  no  concerted  responsibility  whatsoever.  It  continues, 
it  defiantly  continues,  to  be  unable  to  bind  even  its  own  six  members, 
as  heads  of  cabinet  departments,  to  any  one  course  of  action.  It 
creates  a  War  Industries  Board  and  a  Purchasing  Commission  within 
the  Board;  and  the  Purchasing  Commission  turns  out  to  have  one 
sort  of  power  in  relation  to  one  cabinet  department  and  another  sort 
of  power  in  relation  to  another  cabinet  department,  and  it  turns  out 
even  to  have  different  sorts  of  power  in  relation  to  different  purchasing 
sections  within  the  same  cabinet  department;  and  a  manufacturer 
came  to  Washington  the  other  day  and  sold  the  same  commodity  to 
four  different  purchasing  sections  at  four  different  prices.  As  a 
commanding  and  coercing  body  for  men  the  Council  is  much  inferior 
to  the  General  Federation  of  Women's  Clubs  for  women.  Whatever 
it  has  done  of  value  has  been  done,  in  fact,  for  the  most  part  by  the 
camel-like  quality  of  certain  of  its  sub-committees  of  business  men 
who  have  thrust  their  necks  under  the  tent-flaps  and  pushed.  The 
Council  itself  is  not  a  Council.  It  is  an  unresolved  hexagon. 

Moreover  it  has  nothing  to  do  with  shipping,  except  that  it  is 
ordered,  by  the  statute  which  established  it,  to  advise  the  President 
"as  to  the  development  of  sea-going  transportation."  It  may  advise 
him.  It  is  not  empowered  to  execute  its  own  advice  when  he  has 
adopted  it.  He  adopted  the  War  Industries  Board  idea,  at  the  time 
a  good  idea  I  still  believe.  And  then  Mr.  Baker  did  what  seemed 
right  in  his  own  eyes  about  it  in  the  War  Department,  and  so  did 
Mr.  Daniels  in  the  Navy  Department,  and  it  is  therefore  clear  that  even 
if  Mr.  Hurley  were  a  member  of  the  Council  of  National  Defense — 
which  he  is  not — the  Council  could  not  and  would  not  control  him. 

At  one  time  the  Council  did  indeed  adventure  itself  into  shipping 
by  appointing  a  "Shipping  Committee"  of  shipping  men.  But  this 
committee  just  naturally  floated  away  from  the  neighborhood  of  the 
Council  and  drifted  into  the  neighborhood  of  the  Shipping  Board; 
and  its  chairman,  Mr.  Munson,  now  represents  the  Shipping  Board  on 
the  War  Trade  Board. 

The  national  value  of  the  Council  today  might  be  summed  up  thus: 

Shipping  is  at  present  the  most  important  part  of  the  war  for  us. 
The  Council,  partly  because  of  its  statute  and  partly  because  of  its 
temper,  has  no  control  of  shipping. 

Shipbuilders  have  come  to  Washington  and,  in  great  perplexity, 
have  demanded  to  knoW:  Should  they  give  priority  to  the  ships  they 
were  building  for  the  Navy  or  to  the  ships  they  were  building  for  the 


OBSTACLES  TO  RAPID  MOBILIZATION  229 

Emergency  Fleet  Corporation?  The  Navy  wanted  speed.  The 
Emergency  Fleet  Corporation  wanted  speed.  What  power  does  the 
Council  of  National  Defense  possess,  what  power  has  it  tried  to  get, 
to  decide  that  certain  ships  shall  precede  other  ships  into  the  water 
and  then  to  enforce  its  decision  ?  None. 

A  body  which  cannot  jointly  and  bindingly  execute  a  high  policy 
on  all  parties  concerned  will  never  even  formulate  a  high  policy.  That 
is  why  the  formulation  of  every  high  policy  falls  crushingly,  time  after 
time,  on  the  President.  That  is  why  we  assume  that  our  "Grand 
Priority  Board"  will  have  the  power  to  execute.  That  is  why  we 
assume  that  it  will  have  the  power  to  bind  Mr.  Baker  and  to  bind 
Mr.  Daniels  and  to  bind  everybody  else.  Otherwise  it  will  not  think. 
If  it  cannot  act,  it  will  not  think. 

Therefore,  when  our  "Grand  Priority  Board"  has  made  its  recom- 
mendations to  the  President,  and  when  the  President  has  done  his 
selecting  and  his  modifying  and  his  approving,  we  imagine  the  Board 
going  on  immediately  to  action.  It  has  already  strengthened  the 
President's  autocracy,  his  necessary  administrative  autocracy,  by 
serving  him  as  a  machine,  as  a  supreme  and  impartial  machine,  super- 
departmental,  for  the  informing  of  his  will.  It  now  strengthens  his 
autocracy  again  by  proceeding  to  execute  his  will,  his  informed  arid 
declared  will,  on  all  departments  comprehensively  and  continuously. 
Thereupon  his  autocracy  becomes  effective  because  it  becomes 
effectively  possible.  It  gets  confined  to  the  hours  of  decision.  It 
escapes  the  days  of  information  undigested  and  of  execution  unhar- 
'monized.  In  shipping,  in  the  war.  And  in  -virtually  everything  else 
of  high  importance  in  the  war. 

For,  consider.  As  soon  as  the  "Grand  Priority  Board"  begins 
to  enforce  a  shipping  policy,  it  begins  to  tell  the  War  Department  how 
many  men  can  go  to  France  and  therefore  how  many  men  should  be 
trained  just  now,  and  it  begins  to  tell  the  Navy  Department  how 
many  destroyers  can  be  built  and  therefore  how  many  new  bluejackets 
should  be  enlisted  just  now,  and  it  begins  to  tell  the  War  Industries 
Board  how  much  steel  can  be  transported  to  Europe  for  the  Allies 
and  therefore  how  much  steel  should  be  manufactured  for  the  Allies 
in  America  just  now,  and  it  begins  to  tell  our  whole  civilian  population 
how  much  food  it  is  likely  to  get  from  abroad  and  therefore  what  shifts 
of  work  or  of  appetite  it  must  adopt  for  increased  production  at  home 
or  for  increased  abstinence,  and  it  begins  to  tell  something  of  some 
sort  to  almost  everybody  of  every  sprt,  public  or  private. 


230  ECONOMICS  OF  WAR 

What  is  it  then,  this  Board?  We  have  seen  that  it  is  greatly 
desirable,  that  it  is  even,  for  harmony  and  for  rapidity,  unavoidable 
in  the  matter  of  shipping.  But  it  reveals  itself,  as  soon  as  it  acts, 
to  be  much  more,  infinitely  more,  than  a  shipping  affair.  It  reveals 
itself  to  be  what  is  revealed  finally  in  every  other  affair  projected  to 
bring  harmony  and  rapidity  into  any  high  part  of  the  war.  It  reveals 
itself  to  be  the  One  Thing  Needful — the  "  War  Council  of  the  United 
States." 

XXII.     Concrete  Illustrations  of  the  Problems  Involved 

i.     DEVELOPING  THE  MACHINERY  FOR  THE 
ADMINISTRATION  OF  LABOR1 

I.      THE   EARLY   STAGES   OF   REMEDIAL   ACTION 

Our  whole  administrative  approach  to  the  problems  of  war  made 
impossible  any  prompt  solution  through  a  centralized  administration 
of  labor  problems.  To  begin  with,  we  had  not  followed  the  English 
precedent  of  establishing  a  central  department  of  production  or 
Ministry  of  Munitions,  in  which  contracts,  control  of  production  in 
relation  to  contracts,  and  control  of  labor  in  relation  to  production 
we're  placed  under  one  administrative  head  who  could  keep  the  various 
factors  in  proper  balance.  Far  from  being  under  one  control,  our 
contracting  and  production  departments  were  actually  competing 
with  each  other  in  the  procurement  of  supplies.  Through  their 
various  contractors  they  were  competing  with  each  other  for  labor 
to  be  used  in  production. 

In  view  of  the  unwillingness  of  our  responsible  officials  to  provide 
a  central  department  of  production,  there  was  but  one  agency,  the 
Council  of  National  Defense,  which  could  bring  about  co-operative 
action,  and  it  was  well-nigh  powerless  to  deal  with  the  situation.  The 
Council  of  National  Defense  is  an  investigating  and  advisory  body. 
Its  administrative  powers  are  not  great.  Handicapped  as  it  was,  it 
none  the  less  expended  much  time  and  effort  in  the  attempt  to  bring 
order  out  of  chaos.  As  early  as  April  7,  1917,  it  passed  a  resolution 
urging  the  maintenance  of  existing  labor  standards  and  existing  indus- 
trial relations.  Its  Committee  on  Labor  did  much  useful  service  in 
the  development  of  sound  public  sentiment,  in  the  formulation  of 
acceptable  standards  of  labor,  in  making  inquiries  concerning  dangers 

1  By  L.  C.  Marshall  (see  p.  180).  Adapted  from  "The  War  Labor  Program 
and  Its  Administration,"  Journal  of  Political  Economy,  XXVI  (May,  1918),  430-34. 


OBSTACLES  TO  RAPID  MOBILIZATION  231 

to  labor  arising  from  war  conditions,  in  assisting  in  formulating  laws 
and  regulations  with  respect  to  social  insurance  and  employment 
agency  work,  and  in  various  other  ways.  It  could  not,  however, 
deal  administratively  with  labor  in  production. 

No  complete  account  of  the  Council's  labor  activities  will  be 
attempted.  Their  general  drift  may  be  sufficiently  seen  from  the 
fact  that  late  in  August,  1917,  a  resolution  for  the  appointment  by 
the  Council  of  a  War  Labor  Board  of  five  members  was  defeated  by 
the  narrow  margin  of  one  vote,  a  unanimous  vote  being  regarded 
expedient  in  such  a  case.  The  dissenting  vote  on  this  resolution  was 
not  caused  by  opposition  to  a  centralization  of  labor  administration, 
but  by  a  belief  that  our  war  administration  already  had  a  superfluity 
of  boards.  Experience  had  made  it  increasingly  clear  that  the  ban 
mot  of  one  of  the  Cabinet  officers  was  appropriate:  "A  board  is  long 
and  narrow  and  wooden." 

It  is  noticeable  that  the  demand  for  some  central  agency  in  labor 
administration  at  this  time  centered  primarily  about  the  supposed 
shortage  of  labor.  This  same  consideration  was  largely  responsible 
for  a  later  action  of  the  Council  of  National  Defense.  On  November  2, 
1917,  they  instructed  the  Director 

to  undertake  the  following  work,  co-operating  with  the  Department  of  Labor 
and  other  government  agencies: 

1.  To  determine  present  and  probable  future  demand  for  labor  in  war 
industries. 

2.  To  determine  in  connection  with  the  Priorities  Committee  of  the  War 
Industries  Board  the  relative  priorities  of  the  labor  demand. 

3.  To  arrange  for  the  supplying  of  the  demand  through  the  Department 
of  Labor  or  such  other  governmental  or  civilian  agencies  as  can  best  meet  the 
demand. 

4.  To  determine  the  needs  for  dilution  of  labor  including  the  introduc- 
tion of  women  into  industry  and  recommend  policies  to  be  followed  in 
regard  thereto. 

This  action  resulted  late  in  November  in  the  establishment  of 
the  so-called  Industrial  Service  Section  of  the  Council  of  National 
Defense.  By  that  time,  however,  the  true  character  of  labor  problems 
in  war  production  had  been  more  clearly  revealed.  At  the  request 
of  the  chief  of  the  Industrial  Service  Section  its  activities  were  per- 
mitted to  take  the  form  of:  (a)  co-operating  with  others  in  promoting 
the  development  of  a  United  States  Employment  Service  in  the 
Department  of  Labor;  (b)  co-operating  with  others  in  bringing  to 


232  ECONOMICS  OF  WAR 

pass  a  unified  labor  administration  which  would  have  executive  rather 
than  consulting  power  and  would  be  concerned  with  the  whole  range 
of  problems  involved  in  the  control  of  labor  in  production. 

It  is  of  course  highly  desirable  that  the  administration  of  war  labor 
matters  should  be  closely  connected  with  the  production  of  war 
materials.  Since,  however,  this  was  for  many  reasons  not  feasible 
in  the  earlier  stages  of  our  war  activities,  the  question  arises  whether 
labor  agencies  which  were  not  directly  connected  with  production 
might  not  have  stepped  into  the  breach.  The  chief  agencies  of  this 
character  were  the  state  bureaus  of  labor  and  the  federal  Department 
of  Labor.  The  state  bureaus  of  labor  could  at  the  best  deal  with  the 
problem  piecemeal  as  it  appeared  within  the  borders  of  the  individual 
states.  Even  within  this  circumscribed  field  their  usefulness  was  not 
great.  Typically,  they  have  not  been  organized  on  the  basis  of  an 
appreciation  of  the  part  labor  plays  in  production.  Rather,  their 
organization  has  been  formulated  in  vague  terms  of  labor  welfare. 
Several  of  these  state  bureaus  have  indeed  done  excellent  work  in 
inspection  of  labor  conditions  and  in  maintenance  of  proper  labor 
standards  among  our  war  industries.  Both  because  of  geographical 
isolation  and  because  a  sense  of  team  play  has  not  developed  among 
them,  it  was  inevitable  that  they  should  fall  far  short  of  meeting  such 
national  problems  as  those  involved  in  securing  an  adequate  supply 
of  labor,  providing  housing,  regulating  wages,  and  adjusting  labor 
disputes. 

The  federal  Department  of  Labor  was  also  not  in  a  position  to 
render  great  service.  Its  enabling  act  provided  for  a  department 
whose  duty  it  would  be  to  "foster,  promote,  and  develop  the  welfare 
of  the  wage-earners  of  the  United  States."  This  was  a  large  order, 
and  could  be  carried  out  only  provided  proper  instrumentalities  were 
furnished.  In  actual  fact,  however,  the  Department  of  Labor  was 
made  up  of  a  somewhat  miscellaneous  collection  of  bureaus  which  had 
been  taken  out  of  the  parent  Department  of  Commerce  and  Labor, 
placed  under  a  new  administrative  control,  and  metamorphosed  by 
the  magic  wand  of  congressional  fiat  into  a  new  department.  Its 
administrative  organization  was  in  no  sense  comprehensive  of  the 
entire  field  of  labor  in  production.  Its  funds  had  been  meagerly 
provided  by  a  somewhat  suspicious  Congress.  Its  support,  both  by 
the  business  world  and  to  some  small  extent  by  the  labor  world  whose 
interests  it  was  designed  to  safeguard,  had  been  lukewarm.  Even  if 
this  department  had  been  cornmissioned  at  the  outset  to  supervise 


OBSTACLES  TO  RAPID  MOBILIZATION  233 

labor  in  war  production  it  could  not  have  done  so  successfully  except 
on  the  basis  of  a  complete  reorganization  of  the  department.  In  point 
of  fact,  it  was  not  so  commissioned.  Its  activities  in  war  production 
were  sporadic.  It  co-operated  with  the  Council  of  National  Defense; 
its  Secretary  was  the  chairman  of  the  President's  Mediation  Com- 
mission; it  took  steps  to  bring  into  existence  the  United  States 
Employment  Service;  it  performed  many  helpful  functions;  but, 
speaking  in  general  terms,  the  department  could  not  properly  be  said 
to  be  operating  on  a  war  basis.  It  was  far  from  occupying  a  position 
of  leadership  in  war  labor  administration. 

There  could  be  no  hope  that  in  the  absence  of  administrative 
agencies  dealing  competently  with  labor  matters  a  satisfactory  solu- 
tion would  somehow  "  emerge  "  because  of  the  "  general  drift  of  things" 
or  by  force  of  "public  sentiment."  The  competitive  striving  of 
contractors  of  government  production  departments,  the  unrest  attend- 
ant upon  war  conditions,  and  the  lack  of  general  knowledge  concern- 
ing the  war  program  of  the  government,  if  indeed  such  a  program 
existed,  made  it  hopeless  to  rely  upon  any  "general  drift  of  things." 
As  for  "public  sentiment"  with  respect  to  labor  matters,  we  have  in 
this  country  unity  of  opinion  neither  with  respect  to  the  proper  goals 
of  industrial  relationships  and  labor  control  nor  with  respect  to  the 
roads  which  should  be  taken  to  reach  those  goals.  Our  industrial 
history  in  such  matters  has  been  guided  by  individualistic  opportu- 
nism. There  is  no  person  or  group  of  persons  who  can  speak  with  an 
authoritative  voice  for  labor  as  a  whole;  no  person  or  group  of  persons 
whose  findings  would  be  accepted  by  capital  as  a  whole;  no  person  or 
group  of  persons  whose  leadership  would  be  acknowledged  by  the 
public.  We  drift,  and  our  drifting  is  attended  by  suspicions,  jeal- 
ousies, and  irritations  derived  from  labor  contests  of  the  past.  Not 
only  is  well-informed  public  sentiment  on  labor  matters  lacking,  but 
also  there  is  in  the  individual  industrial  plants  a  lack  of  local  machinery 
adequate  for  carrying  out  a  national  labor  policy  from  whatever 
source  such  a  policy  might  spring.  Shop  committees,  employment 
managers,  welfare  divisions,  scientific  management,  etc.,  have  not 
been  developed  to  the  point  where  they  meet  the  needs  of  the  case.  A 
survey  of  the  situation  would  convince  the  most  pronounced  advocate 
of  laissezfaire  that  his  dogma  is  not  applicable  to  the  needs  of  the  case. 

Meanwhile,  the  various  production  departments  of  the  govern- 
ment were  not  in  a  position  to  accept  the  situation  gracefully.  Results 
were  demanded  of  them.  It  was  not  merely  that  congressional 


234  ECONOMICS  OF  WAR 

inquiries  loomed  in  the  not-distant  future.  A  more  significant  fact 
appeared  in  the  steadily  accumulating  evidence  that  paper  contracts 
did  not  necessarily  mean  soldiers  clothed  and  fed  and  equipped  for 
fighting,  and  that  unless  effective  steps  were  immediately  taken  to 
check  the  growth  of  industrial  disputes,  of  labor  turnover,  and  of 
general  demoralization  of  the  productive  power  of  labor,  adequate 
industrial  support  would  not  be  available  for  the  armies  on  the 
Western  Front.  In  the  absence  of  centralization  of  production,  in 
default  of  administrative  control  of  labor  in  production,  in  the  dearth 
of  sound  national  sentiment  on  labor  matters  which  would  cause 
effective  utilization  of  our  labor  resources  to  emerge  automatically, 
our  production  departments  saw  no  course  open  to  them  but  to  take 
charge  of  the  situation  themselves. 

Their  first  actions  combined  a  groping  for  a  national  labor  policy 
through  a  series  of  agreements  with  organized  labor  and  the  estab- 
lishment of  adjustment  commissions  to  cope  with  industrial  disputes. 
The  names  of  these  commissions  with  the  dates  of  their  development 
tell  much  of  the  story.  The  list  includes:  National  Committee  on 
Mediation  and  Conciliation  of  the  Labor  Committee  of  the  Council 
of  National  Defense;  June  19,  1917,  Cantonment  Adjustment  Com- 
mission (includes  cantonments,  aviation  fields,  and  storage  facilities; 
similar  arrangement  for  similar  construction  by  navy);  August  15, 
1917,  Arsenals  and  Navy  Yard  Wage  Commission;  August  24,  1917, 
Board  of  Control  of  Labor  Standards  in  Army  Clothing;  August  25, 
1917,  Shipbuilding  Labor  Adjustment  Board;  August,  1917,  National 
Adjustment  Commission  (longshoremen  disputes)  with  local  adjust- 
ment commissions;  September  19,  1917,  President's  Mediation  Com- 
mission; September  26,  1917,  Harness  and  Saddlery  Adjustment 
Commission. 

It  is  not  without  significance  that  these  production  departments 
deemed  it  worth  while  to  set  up  adjustment  commissions  independent 
of  the  Mediation  and  Conciliation  Service  of  the  Department  of  Labor 
and  that  the  Department  was  represented  on  only  two  or  three  of  these 
commissions.  Their  work  has  been  on  the  whole  well  done.  They 
have  not  been  able  to  act  on  the  basis  of  any  uniform  national  policy, 
for  no  such  policy  exists.  Herein  has  been  the  main  defect  in  their 
work. 

There  is  far  more  involved  in  the  administration  of  labor  in  pro- 
duction than  the  satisfactory  adjustment  of  industrial  disputes. 
Indeed  an  ideal  administration  of  labor  would  so  care  for  the  other 


OBSTACLES  TO  RAPID  MOBILIZATION  235 

elements  of  the  situation  as  to  prevent  the  emergence  of  industrial  dis- 
putes. To  cope  with  these  other  elements  of  the  situation,  the 
production  departments  began  to  establish  Industrial  Service  Sec- 
tions. The  earliest  of  these  was  established  by  the  Shipping  Boa,rd; 
the  second  by  the  Ordnance  Department;  and  similar  agencies,  though 
they  do  not  bear  the  same  name,  have  been  established,  or  are  reported 
to  be  in  process  of  formation,  in  the  Navy,  the  Quartermaster  Corps, 
the  Construction  Division,  and  the  Aircraft  Board. 

These  Industrial  Service  Sections  represent  a  correct  industrial 
philosophy  in  that  they  are  parts  of  the  production  departments 
themselves  and  can  thus  deal  with  conditions  of  labor,  housing,  train- 
ing, etc.,  from  the  point  of  view  of  war  needs  and  war  production. 
They  have  themselves,  however,  felt  keenly  the  difficulties  of  their 
situation.  The  administration  of  labor  is  not  an  ordnance  problem, 
not  a  quartermaster  problem,  not  a  shipping  problem — it  is  a  national 
war  problem.  Perfect  administration  within  the  confines  of  any  one 
or  of  all  the  production  departments  does  not  suffice.  There  remains 
a  need  of  a  centralizing  agency  which  can  harmonize  all  administrative 
policies,  administer  labor  in  production  in  industries  essential  to  war 
work  although  they  may  not  have  direct  contracts  with  the  govern- 
ment, and  care  for  those  aspects  of  labor  administration  which  are 
broader  than  the  work  of  a  single  production  department,  such  as  the 
procurement  and  the  distribution  of  the  supply  of  labor,  the  main- 
tenance of  a  balance  of  wage  rates,  the  provision  of  adequate  housing, 
and  the  development  of  sound  public  sentiment.  Early  in  December 
the  production  departments  themselves  reached  the  conclusion  that 
their  situation  with  respect  to  labor  control  was  an  intolerable  one 
and  that  unification  must  occur.  Projects  for  war  labor  boards  in  the 
Council  of  National  Defense  had  come  to  naught.  Dinner  gatherings 
of  persons  in  charge  of  labor  administration  in  the  various  depart- 
ments availed  little.  Leading  production  officials  accordingly  sent 
an  informal  request  to  the  Council  of  National  Defense  that  it  assume 
the  leadership  in  bringing  about  definite  unification  of  labor  adminis- 
tration. 

II.      EVENTS   LEADING   DIRECTLY   TO   THE   AUTHORIZATION   OF   A 
COHERENT   LABOR   ADMINISTRATION 

Acting  on  the  informal  request  of  the  production  departments, 
the  Council  of  National  Defense  appointed  a  so-called  Interdepart- 
mental Committee,  made  up  of  representatives  of  the  main  producing 


236  ECONOMICS  OF  WAR 

departments.  It  asked  this  committee  to  survey  conditions  and  to 
recommend  a  course  of  action. 

Little  time  was  spent  by  the  committee  in  a  survey  of  conditions 
which,  were  notorious.  Its  major  efforts  were  expended  upon  an 
analysis  of  corrective  measures  and  a  consideration  of  the  agency 
appropriate  to  conduct  a  national  labor  administration.  As  will  be 
apparent  from  a  reading  of  its  report,  much  progress  in  thinking  had 
been  made  since  the  day  of  the  projected  war  labor  board  of  the 
Council  of  National  Defense.  It  had  become  clear  that  (a)  in  some 
manner  there  must  emerge  a  comprehensive  national  labor  policy,  (b) 
which  must  be  administered  on  a  national  scale  by  a  well-rounded 
labor  administration  having  executive  power.  With  respect  to  the 
agency  appropriate  to  carry  on  this  administration,  much  discussion 
took  place  within  the  committee.  The  possibilities  of  the  case  were 
numerous,  but  they  narrowed  down  to  four  main  ones. 

There  was  in  the  first  place  the  possibility  of  establishing  an 
agency  corresponding  to  the  British  Ministry  of  Munitions,  which 
would  bring  under  one  control  all  the  procurement  and  production 
activities  of  the  government.  Administration  of  labor  in  production 
would  in  this  event — and  properly— become  a  bureau  or  phase  of  the 
Ministry  of  Munitions.  The  logic  of  accepted  principles  of  business 
administration  pointed  very  definitely  to  some  such  solution,  as  did 
also  successful  British  experience.  It  was  known,  however,  that  our 
national  administration  was  definitely,  and  apparently  irrevocably, 
opposed  to  such  a  solution,  and  it  seemed  reasonably  clear  that  a 
proposal  for  the  American  equivalent  of  the  British  Ministry  of 
Munitions  would  result  solely  in  bickering  and  delay. 

Passing  to  the  other  extreme,  there  was  the  possibility  of  attempt- 
ing to  solve  the  problem  by  means  of  a  board  or  a  committee  made  up 
of  the  persons  already  in  administrative  charge  of  labor  matters. 
Both  Washington  and  the  country  at  large,  however,  had  by  this  time 
had  a  surfeit  of  boards,  and  the  proposal  of  a  war  labor  board  of  this 
type  received  scant  consideration. 

A  third  possibility  lay  in  an  extension  of  the  powers  of  the  Depart- 
ment of  Labor.  In  this  department  the  nucleus  of  an  administrative 
agency  was  already  in  existence,  one  that  had  the  confidence  of  both  the 
organized  and  unorganized  labor  of  the  entire  country.  It  could  be 
urged  against  this  solution,  however,  that  the  Department  of  Labor 
was  not  in  close  touch  with  production  activities  and  that  it  was 
viewed  with  some  suspicion  by  a  considerable  section  of  the  business 


OBSTACLES  TO  RAPID  MOBILIZATION  237 

community.  Some  question  arose  also  concerning  the  wisdom  of 
having  the  later  years  of  peace  administration  of  the  department 
prejudiced  by  an  association  with  the  jealousies,  strains,  and  possible 
failures  of  war  administration. 

The  fourth  possibility  was  that  of  a  separate  war  labor  adminis- 
tration, comparable  to  the  food  and  fuel  administrations.  This 
solution  received  the  approval  of  those  who  felt  that  it  would  increase 
the  confidence  of  the  business  world  if  the  administration  were 
divorced  from  the  Department  of  Labor.  It  seemed  probable,  how- 
ever, that  this  gain  would  be  more  than  offset  by  the  loss  resulting 
from  the  disapproval  of  labor.  Furthermore,  the  President's  sense 
of  loyalty  to  his  subordinates  and  his  known  attitude  on  labor  matters 
made  it  seem  probable  that  he  would  insist  on  the  war  labor  adminis- 
tration being  in  the  hands  of  the  Department  of  Labor. 

The  report  of  the  committee  as  finally  made,  on  December  20, 
1917,  to  the  Council  of  National  Defense  is  worth  reproducing  in  full, 
for  it  indicates  in  concise  form  the  nature  of  the  problem. 

A 

Your  Committee  is  of  the  opinion  that  the  present  method  of  dealing 
with  labor  problems  which  arise  in  connection  with  the  Government's  war 
activities  is  not  satisfactory;  and  for  the  following  reasons: 

1 .  At  present  each  department  of  the  Government  is,  with  a  few  excep- 
tions, dealing  with  its  own  labor  problems  irrespective  of  what  is  done  by 
other  departments.    As  a  result  (a)  there  is  much  duplication  of  effort; 
(b)  there  is  no  uniformity  of  policy  or  procedure ;  (c)  there  is  much  conflicting 
action. 

2.  Each  department  competes  against  all  other  departments  for  essential 
skilled  labor.     Contractors  and  sub-contractors  engaged  on  Government 
work  are  using  every  means  at  their  command  to  draw  essential  skilled  labor 
away  from  one  another.    By  this  means  labor  turnover  is  multiplied  and 
men  are  kept  moving  from  job  to  job  in  certain  industries  for  higher  pay. 

3.  There  is  as  yet  no  adequate  system  for  dealing  promptly  and  uni- 
formly on  a  nation-wide  basis  with  labor  disputes  affecting  war  work.    The 
result  is  an  increasing  labor  unrest. 

4.  To  allow  this  situation  to  continue  will,  in  our  opinion,  diminish  the 
country's  production  and  eventually  paralyze  industry. 

B 

Your  Committee  is  of  the  opinion  that  action  should  be  taken  along  the 
following  lines: 

i.  In  order  to  allay  industrial  unrest  and  to  create  a  spirit  of  real  co- 
operation between  labor  and  capital  during  the  war,  it  is  essential  that 


238  ECONOMICS  OF  WAR 

excessive  war  profits  be  wholly  eliminated;  and  that  the  Government's 
policy  in  regard  thereto  be  sufficiently  uniform  so  that  the  wage-earner  can 
be  satisfied  that  profiteering  no  longer  exists.  ,,-. 

2.  A  series  of  understandings  concerning  certain  underlying  principles 
affecting  labor  should  be  arrived  at  between  representatives  of  employers, 
employees,  and  the  Government.     The  following  are  some  of  the  questions 
which  should  be  considered  in  such  conferences:  basis  for  wage  determina- 
tion, strikes  and  lockouts,  piece-work  prices  and  price  fixing,  method  of 
eliminating  improper  restrictions  on  output  of  war  material  from  whatever 
cause,  practice  to  govern  dilution  of  labor,  discrimination  against  union  and 
non-union  men,  admission  of  union  agents  to  plants,  method  of  promptly 
adjusting  disputes  at  their  source  through  boards  containing  equal  repre- 
sentation of  employers  and  employees,  right  of  workmen  to  organize. 

3.  A  coherent  labor  administration  in  accordance  with  principles  to  be 
determined  as  set  forth  above  should  be  established  to  deal  with  all  labor 
problems  arising  in  connection  with  war  work. 


There  is  as  yet  no  consensus  of  opinion  as  to  what  means  or  agency  shall 
be  used  to  secure  this  coherent  labor  administration.  The  following  are  the 
outstanding  suggestions: 

1.  A  co-ordinating  war  labor  board,  either  under  or  divorced  from  the 
Council  of  National  Defense,  to  which  the  various  existing  agencies  shall 
delegate  powers.    This  seems  to  your  committee  too  loose  an  organization 
to  meet  the  emergency. 

2.  A  very  great  extension  of  the  activities  of  the  Department  of  Labor. 

3.  The  establishment  of  a  department  of  production,  which,  along  with 
its  other  duties,  would  take  charge  of  the  appropriate  aspects  of  labor 
administraiton.     Such  a  department  would  co-operate  with  the  Department 
of  Labor  in  securing  coherent  administration  of  the  whole  problem- 
Action  on  the  report  of  the  committee  was  deferred  by  the  Council 

of  National  Defense  until  the  return  of  the  Secretary  of  Labor,  who 
was  at  that  time  in  the  West  with  the  President's  Mediation  Com- 
mission. On  January  3,  1918,  the  report  of  the  committee  was  taken 
up  by  the  Council  with  the  Secretary  of  Labor  present,  and  the 
Secretary  of  War,  the  presiding  officer  of  the  Council,  was  instructed 
to  present  the  matter  to  the  President  of  the  United  States  for  his 
favorable  consideration.  The  President  approved  the  program,  and 
on  January  4  asked  the  Secretary  of  Labor  to  take  steps  to  organize 
a  war  labor  administration. 

Responsibility  had  at  last  been  located.  It  remained  to  be  seen 
whether  the  coherent  labor  administration  authorized  by  the  President 


OBSTACLES  TO  RAPID  MOBILIZATION  239 

would  be  linked  properly  with  the  administration  of  production.  It 
remained  to  be  seen  whether  an  organization  could  be  evolved  which 
would  really  enable  the  Department  of  Labor  to  "deal  with  all  labor 
problems  arising  in  connection  with  war  work."  None  the  less,  the 
highest  executive  authority  had  taken  the  question  of  labor  adminis- 
tration under  consideration,  had  decided  that  unification  was  neces- 
sary, and  had  designated  the  agency  to  bring  about  this  unification. 
From  this  time  forth  responsibility  for  lack  of  unification  could  be 
placed  definitely  at  the  door  of  the  Secretary  of  Labor.  He  was 
called  upon  to  provide  the  coherent  labor  administration.  If  he 
could  not  provide  it,  he  must  make  clear  the  forces  preventing  his 
doing  so  in  order  that  the  Chief  Executive  might  seek  other  solutions 
for  the  difficulties. 

THE   WORK   OF   THE   ADVISORY  COUNCIL  TO   THE   SECRETARY 
OF   LABOR 

The  Secretary  of  Labor  at  once  took  up  the  matters  intrusted  to 
his  care.  He  called  to  his  assistance  an  Advisory  Council,  which  he 
requested  to  suggest  plans  and  personnel  for  organizing  the  new  work. 
A  very  brief  survey  of  the  situation  convinced  the  Council  that  the 
nation  required  (a)  a  definite  national  labor  program  (6)  which  could 
be  executed  through  effective  mechanisms  in  industrial  plants 
(c)  on  the  basis  of  sound  public  sentiment  (d)  by  an  efficient  labor 
administration.  The  two  essential  features  of  this  requirement 
were  the  definite  national  labor  policy  and  an  efficient  labor 
administration.  Given  these,  the  other  elements  might  reasonably 
be  expected  to  be  called  into  existence.  Lacking  these,  everything 
was  lacking. 

In  view  of  this  situation  it  seemed  to  the  Advisory  Council  that 
its  first  task  was  that  of  providing,  as  well  as  might  be,  for  the  emer- 
gence of  a  national  labor  policy  which  would  have  the  possibilities  of 
being  acceptable  to  labor,  capital,  and  the  public.  On  January  19, 
three  days  after  they  began  their  work,  the  Council  presented  to  the 
Secretary  of  Labor  the  following  memorandum : 

The  Advisory  Council  recommends  to  the  Secretary  of  Labor  that  he 
call  a  conference  of  twelve  persons  representing  employers'  organizations, 
employees'  organizations,  and  the  public,  for  the  purpose  of  negotiating 
agreements  for  the  period  of  the  war,  having  in  view  the  establishment  of 
principles  and  policies  which  will  enable  the  prosecution  of  production  with- 
out stoppage  of  work. 


240  ECONOMICS  OF  WAR 

The  Advisory  Council  recommends  that  this  conference  body  of  twelve 
be  composed  as  follows:  Employers'  organizations,  as  represented  by  the 
National  Industrial  Conference  Board,  are  to  name  five  employers,  and  these 
five  are  to  select  a  person  representing  the  general  public.  Employees' 
organizations,  as  represented  by  the  American  Federation  of  Labor,  are  to 
name  five  representatives  of  labor,  and  these  five  are  to  select  another 
representative  of  the  general  public. 

The  Secretary  approved  this  memorandum,  issued  an  appro- 
priate call,  and  brought  into  being  the  War  Labor  Conference 
Board. 

The  Secretary  also  approved  a  later  recommendation  of  his 
Advisory  Council  in  which  it  pointed  out  that  a  labor  policy  must  be 
a  growing  thing,  changing  with  the  requirements  of  various  situations, 
meeting  the  needs  not  merely  of  war  but  also  of  the  reconstruction 
period;  and  in  which  it  urged  the  selection  of  a  person  who,  in  co- 
operation with  the  Secretary  of  Labor,  would  serve  as  a  planning 
agency  in  formulating  and  steadily  developing  the  national  labor 
program.  The  Council  pointed  out  that  such  a  person  should  be  an 
investigator,  with  ability  to  administer  investigations,  who  had  a 
vision  of  the  service  the  Department  of  Labor  might  render  in  leading 
the  way  to  a  new  order  in  industrial  relationships. 

Turning  now  to  the  other  features  of  the  war  labor  administration, 
in  memoranda  dated  January  17  and  19  the  Advisory  Council 
presented  to  the  Secretary  of  Labor  recommendations  (which  he 
approved)  that  he  appoint  "as  soon  as  it  might  prove  feasible" 
directors  of  the  following  divisions  of  the  work: 

A.  An  Adjustment  Service  which  will  have  to  do  with  the  adjustment  of 
industrial  disputes  according  to  policies  and  principles  arrived  at  through  the 
deliberations  of  the  War  Labor  Conference  Board. 

B.  A  Conditions  of  Labor  Service  which  will  have  charge  of  the  adminis- 
tration of  conditions  of  labor  within  business  plants. 

C.  An  Information  and  Education  Service  which  will  devote  itself  to 
the  establishment  of  sound  sentiment  among  both  employers  and  employees 
and  to  the  establishment  in  individual  plants  of  the  local  machinery  [e.g., 
employment  management]  and  policies  necessary  for  the  successful  operation 
of  a  National  Labor  Program. 

D.  A  Woman  in  Industry  Service  which  will  meet  the  problems  con- 
nected with  the  more  rapid  introduction  of  women  into  industry  as  a  result 
of  war  conditions. 

E.  A  Training  and  Dilution  Service  which  will  administer  such  training 
and  dilution  policies  as  may  be  agreed  upon. 


OBSTACLES  TO  RAPID  MOBILIZATION  241 

F.  A  Housing  and  Transportation  of  Workers  Service  whose  duty  it 
will  be  to  provide  the  housing  facilities  to  meet  the  nation's  needs. 

G.  A  Personnel  Service  whose  duties  it  shall  be  to  assemble  and  classify 
information  concerning  appropriate  candidates  for  positions  in  the  war  labor 
administration  and  make  recommendations  for  appointment. 

H.  A  Division  for  the  Investigation  of  Special  Problems  which  would  be 
a  part  of  the  Secretary's  office  force  and  would  conduct  investigations  in  the 
placing  of  contracts,  in  priority  of  labor  demand,  in  powers  of  the  Depart- 
ment, in  problems  of  reconstruction,  and  would  assist  in  formulating  the 
national  labor  policy. 

I.  An  Investigation  and  Inspection  Service  to  provide  the  field  force  of 
examiners  and  inspectors  required  by  the  other  services. 

As  has  been  said  repeatedly,  a  war  labor  administration  which 
would  be  divorced  from  production  would  accomplish  little  or  nothing. 
The  Advisory  Council  accordingly  took  up  as  its  next  task  the  relating 
of  the  central  war  labor  administration  to  the  various  production 
departments  of  government.  On  January  22  it  sent  to  the  Secretary 
of  Labor  a  memorandum,  which  he  approved,  on  the  organization  and 
administration  of  the  new  work. 

Having  thus  blocked  out  the  essential  features  of  the  new  war 
labor  administration  and  its  connection  with  the  production  depart- 
ments of  government,  the  Advisory  Council  turned  to  (a)  a  considera- 
tion of  the  securing  of  funds  to  carry  on  the  work;  (6)  a  canvass  of 
competent  personnel;  (c)  a  detailed  consideration  of  some  of  the  more 
important  services,  particularly  the  United  States  Employment 
Service;  and  (</)  a  study  of  the  relationship  of  the  new  war  labor 
administration  to  various  other  agencies  of  government,  such  as  the 
committees  and  sections  on  labor  of  the  Council  of  National  Defense, 
the  United  States  Employees'  Compensation  Commission,  the  Com- 
mittee on  Education  and  Special  Training  of  the  War  Department, 
the  War  Service  Exchange,  and  the  Federal  Board  for  Vocational 
Education. 

The  securing  of  funds  was  of  course  of  most  pressing  importance. 
It  involved  by  way  of  preliminary  work  (a)  a  survey  of  the  problems 
which  would  have  to  be  met  by  each  service,  (6)  a  study  of  the  plan 
of  organization  which  would  make  it  probable  that  the  service  could 
meet  these  problems  successfully,  (c)  the  preparation  of  organization 
charts  for  the  various  services,  and  (d)  an  estimate  of  the  personnel 
required  and  of  the  expense  involved.  These  matters  were  canvassed 
as  rapidly  as  might  be,  experts  in  the  various  fields  being  called  into 
conference  for  counsel  and  criticism.  It  seemed  to  the  Council  that 


242  ECONOMICS  OF  WAR 

in  view  of  the  pressing  character  of  the  emergency,  it  would  be  proper 
for  the  President  of  the  United  States  to  grant  from  his  emergency 
fund  money  sufficient  to  initiate  the  various  services  and  to  maintain 
them  until  Congress  should  have  provided  the  funds  for  their  con- 
tinuance. This  did  not  seem  to  the  President  expedient.  It  became 
necessary,  therefore,  to  proceed  on  the  basis  of  securing  the  funds  by 
new  Congressional  appropriation.  It  was  February  8  before  the 
Advisory  Council  was  able  to  lay  before  the  Secretary  of  Labor  a 
draft  of  a  letter  to  be  sent  to  the  Secretary  of  the  Treasury  transmitting 
estimates  for  the  appropriations  needed  for  the  rest  of  the  fiscal  year 
1918,  and  for  the  fiscal  year  1919.  After  further  study  and  revision, 
these  estimates  were  sent  to  the  Secretary  of  the  Treasury  and  by  him 
transmitted  on  February  15  to  the  Speaker  of  the  House  of  Repre- 
sentatives. The  sums  asked  for  were  exceedingly  modest,  the  Council 
reasoning  that  Congress  would  be  more  or  less  continuously  in  session 
and  that  a  modest  initial  appropriation  would  enable  the  installation 
of  the  new  services.  Congress  could  later  provide  for  them  according 
to  their  demonstrated  merit. 

Little  need  be  said  concerning  the  relationships  of  the  new  labor 
administration  to  the  outside  agencies  previously  mentioned.  Con- 
ferences which  the  Council  held  with  these  outside  agencies  made 
it  abundantly  clear  that  there  was  small  probability  of  friction 
arising,  or,  stated  positively,  that  there  was  every  reason  to  suppose 
that  a  division  of  labor  which  was  satisfactory  to  all  could  readily  be 
worked  out.  The  committees  and  sections  on  labor  of  the  Council 
of  National  Defense  constituted  the  most  puzzling  problem.  These 
agencies  had  done  excellent  work,  but  the  question  arose  whether  the 
continuance  of  advisory  agencies  was  advisable  after  an  executive 
mechanism  had  been  provided.  The  decision  finally  reached  was 
that  an  appropriate  solution  of  this  matter  could  be  made  only  after 
the  new  war  labor  administration  had  become  an  actuality  through 
receiving  adequate  appropriations  from  Congress. 

On  March  5  the  Council  presented  to  the  Secretary  its  final 
memorandum,  dated  March  4,  the  significant  recommendation  of 
which,  aside  from  those  already  covered,  was  as  follows: 

A  departmental  agency  fitted  to  furnish  the  driving  force  which  will 
secure  efficient  execution  of  the  war  labor  administration  should  be  provided. 
It  is  clear  that  the  Secretary  is  already  overburdened  with  the  regular 
administration  of  the  department,  and  the  Advisory  Council  feels  strongly 
that  the  Secretary  should  himself  continue  to  administer  the  adjustment 


OBSTACLES  TO  RAPID  MOBILIZATION  243 

work,  which  will  presumably  increase  in  scope  and  in  demands  on  the 
Secretary's  time.  Unless  an  able  administrator  can  be  found  who  will  give 
his  full  time  to  the  general  supervision  (under  the  Secretary)  of  these  war 
labor  matters,  it  is  the  judgment  of  your  Advisory  Council  that  the  venture 
will  not  achieve  its  full  measure  of  success. 

The  person  to  assume  this  responsibility  must  have,  above  all,  vision  and 
administrative  capacity.  Possessing  these,  the  other  attributes  will  follow 
as  a  matter  of  course.  He  must  be  able  to  command  the  respect  of  the 
members  of  the  Policies  Board  and  must  be  willing  to  assume  responsibility 
and  authority.  His  position  will  be  an  impossible  one  except  with  the  most 
cordial  support  of  the  Secretary.  For,  without  formal  title,  he  would 
be  asked  to  perform  under  the  Secretary  the  duties  of  a  War  Labor 
*  Administrator. 

The  course  of  events  up  to  March  5  might  very  naturally  lead 
one  to  conclude  that  within  two  or  three  weeks'  time  a  unified  labor 
administration  would  come  into  actual  operation.  As  a  matter  of 
fact,  nothing  of  the  sort  happened  and  the  situation  as  it  stands  now 
(April,  1918)  is  both  curious  and  uncertain. 

From  the  point  of  view  of  the  Secretary  of  Labor  the  matter 
probably  resolves  itself  into  two  main  considerations :  first,  will  he  be 
able  to  secure  from  Congress  the  funds  necessary  to  carry  on  the  war 
labor  administration?  second,  will  he  be  able  to  organize  under  his 
jurisdiction  an  effective  administration  and  be  able  satisfactorily  to 
correlate  it  with  the  Industrial  Service  Sections  now  operating  in  the 
production  departments  ?  On  both  of  these  points  he  must  have  his 
misgivings,  but  certain  considerations  indicate  a  successful  outcome 
if  he  assumes  a  position  of  vigorous  and  efficient  leadership. 

Notwithstanding  the  fact  that  the  appropriation  bill  has  slumbered 
peacefully  in  Congress  for  two  months,  it  is  difficult  to  believe  that 
the  necessary  funds  will  not  be  forthcoming.  There  is  no  denying 
the  existence  of  an  undercurrent  of  ugly  feeling  in  Congressional 
circles  over  the  entire  labor  situation.  Such  a  feeling  could  easily 
develop  out  of  the  memories  of  labor  controversies  of  the  past,  the 
lack  of  well-informed  public  sentiment  on  labor  matters,  the  very  real 
demoralization  of  labor  which  has  occurred  in  some  cases,  and  the 
grossly  misleading  reports  which  have  been  circulated  concerning  labor 
difficulties.  There  is  also  no  denying  that  requests  coming  from  the 
Department  of  Labor  are  viewed  by  a  considerable  section  of  Congress 
with  misgivings,  if  not  with  actual  hostility.  This  section  cannot 
down  its  fears  that  the  Department  of  Labor  will  be  more  concerned 
with  labor  welfare  and  "uplift"  than  it  will  be  with  the  best  utiliza- 
tion of  our  national  resources  by  a  sound  administration  of  labor  in 


244  ECONOMICS  OF  WAR 

production.  This  section  alleges  that  requests  made  by  the  Depart- 
ment of  Labor  in  the  past  have  not  been  properly  supported  with 
reasons  why  they  should  be  granted,  and  it  further  alleges  that  the 
administration  of  the  Department  has  been  wasteful  and  ineffective. 
It  is  not  clear  that  these  allegations  are  the  real  substance  of  the 
difficulty.  They  savor  of  being  excuses  rather  than  substantial 
reasons.  It  is,  furthermore,  not  clear  that  the  attitude  of  this  group 
properly  reflects  the  attitude  of  Congress  as  a  whole. 

Congress  cannot  avoid  being  influenced  by  the  fact  that  the  request 
for  a  war  labor  administration  administered  by  the  Secretary  of  Labor 
did  not  emanate  from  the  Secretary.  The  issue  was  raised  originally 
by  the  production  departments — the  Council  of  National  Defense 
recommended  that  the  coherent  labor  administration  be  under  the 
charge  of  the  Secretary  of  Labor,  and  the  President  of  the  United 
States  issued  an  order  to  that  effect.  The  President  has  since  issued 
a  formal  proclamation  creating  the  National  War  Labor  Board, 
which  is  one  phase  of  the  Secretary's  scheme  of  administration.  It 
will  be  difficult  to  refuse  an  appropriation  under  such  circumstances. 
Indeed,  Congress  has  already  committed  itself  to  a  considerable  extent. 
It  has  appropriated  for  the  current  year  $250,000  for  the  ordinary 
administration  of  the  United  States  Employment  Service  and  has 
given  the  service  an  additional  $250,000  as  a  "rotary  fund"  to  provide 
transportation  for  war  workers.  The  House  of  Representatives  has 
passed  a  bill  for  $50,000,000  to  provide  housing  facilities,  with  the  full 
knowledge  that  the  complete  administration  of  this  fund  would  be 
in  the  hands  of  the  Secretary  of  Labor  and  that  an  understanding 
existed  by  which  he  was  to  play  a  large  part  in  the  administration  of 
the  $50,000,000  housing  fund  already  appropriated  for  the  uses  of  the 
Shipping  Board.  Having  gone  this  far,  Congress  will  be  disinclined 
to  turn  back,  particularly  since  a  strong  case  can  be  made  for  the 
necessity  of  a  central  labor  administration  and  for  the  adequacy  of 
the  central  labor  administration  which  the  Secretary  of  Labor  has 
devised.  It  is  worth  noting  in  this  connection  that  even  if  Congress 
should  fail  to  pass  the  specific  appropriation  bill  herein  referred  to, 
but  should  pass  in  satisfactory  form  the  so-called  Overman  Bill,  which 
is  now  pending,  power  would  be  given  to  the  President  of  the  United 
States  to  carry  out  his  order  of  January  4  authorizing  the  Secretary 
of  Labor  to  set  up  a  national  administration,  by  transferring  to  his 
jurisdiction  the  requisite  agencies  and  instrumentalities.1 

'Eo.  NOTE. — The  Overman  Bill  was  subsequently  passed. 


OBSTACLES  TO  RAPID  MOBILIZATION  245 

2.    THE  HISTORY  OF  THE  WAR  INDUSTRIES  BOARD1 

I.   ANTECEDENTS 

To  trace  the  history  of  the  War  Industries  Board  it  is  necessary  to 
go  back  to  the  beginnings  of  the  Council  of  National  Defense  and  its 
Advisory  Commission,  under  whose  legal  authority  the  Board  was  first 
organized  and  of  which  it  is  still  technically  a  part.  The  Council  of 
National  Defense  and  Advisory  Commission,  it  will  be  recalled,  were 
created  in  a  section  of  the  Army  Appropriation  Act  approved  August 
29,  1916.  In  general,  the  Council  was  to  study  the  industrial  and 
transportation  systems  of  the  country  and  make  recommendations 
as  to  the  methods  by  which  they  might  best  be  utilized  in  case  of  some 
possible  future  war.  The  members  of  the  Advisory  Commission  were 
appointed  in  October  of  that  year.  Yet  it  was  not  until  March  3, 
1917,  that  the  Council  was  fully  organized.  By  this  time  any  idea 
of  carrying  out  the  letter  of  the  enabling  act  by  conducting  a  long- 
drawn-out,  survey  of  American  industry  had  gone.  The  time  was  too 
short.  Immediate  action  was  vital,  and  while  the  Commission  was 
not  designed  as  an  executive  body,  the  law  creating  it  was  elastic 
enough  to  permit  a  great  deal  of  successful  effort  toward  bringing 
industrial  organization  in  touch  with  the  government  through  the 
several  departments  represented  in  the  Council  of  National  Defense. 

The  Commission  divided  itself  into  seven  committees,  repre- 
senting respectively  transportation  and  communication;  munitions 
and  manufacturing,  (including  standardization);  supplies  (including 
clothing);  raw  materials,  minerals,  and  metals;  engineering  and 
education;  labor;  and  medicine  and  surgery  (including  general 
sanitation).  Under  this  arrangement  the  Commission  constituted 
itself  an  informal  advisory  industrial  cabinet — in  a  sense  the  first 
agency  in  the  government  to  devote  itself  to  the  war  industrial  prob- 
lem as  an  entity — with  each  member  serving  as  a  rjoint  of  contact 
between  the  particular  form  of  activity  with  which  he  was  charged 
and  the  several  government  departments. 

Yet  as  the  war  continued,  increasing  experience  began  to  show 
weaknesses  in  the  design  of  the\  Council's  structure  as  applied  to  the 
new  and  unexpected  task  which  confronted  it.  In  the  supply  problem 

1  By  Curtice  N.  Hitchcock.  Adapted  from  "The  War  Industries  Board. 
Its  Development,  Organization,  and  Functions,"  Journal  of  Political  Economy, 
XXVI  (June,  1918),  545-66. 

ED.  NOTE. — Mr.  Hitchcock  was  Assistant  Secretary  of  the  Council  of  National 
Defense  during  the  first  year  of  the  war. 


246  ECONOMICS  OF  WAR 

the  bureaus  and  departments  of  the  Army  and  Navy,  organized  on 
the  old  hard-and-fast  lines  established  through  generations  of  peace- 
time bureaucratic  habit,  naturally  tended  each  to  attempt  to  meet 
its  own  needs  in  its  own  way  with  little  or  no  concerting  of  effort  even 
when  several  needed  large  amounts  of  the  same  form  of  supplies. 
These  purchasing  bureaus  early  began  commissioning  civilians  to  meet 
the  great  need  for  increased  personnel,  but  this  seldom  affected  the 
systems  under  which  they  were  managed.  Certain  of  these  bureaus, 
directed  by  capable  officials,  handled  their  own  individual  problems 
unusually  well.  The  fundamental  weakness  in  the  whole  situation 
was  not  so  much  the  individual  incapacity  displayed  in  a  few  instances 
by  bureau  officials  as  the  lack  of  cohesion  in  the  whole  governmental 
system  which  prevented  the  adoption  by  all  bureaus  of  a  single  policy 
toward  industry. 

II.   THE  GENERAL  MUNITIONS  BOARD 

The  earliest  manifestation  of  weakness  in  the  iron-clad  separation 
of  bureaucratic  functions  displayed  itself  through  a  general  tendency 
on  the  part  of  the  purchasing  bureaus  to  bid  against  each  other  for  all 
kinds  of  supplies  and  materials,  with  the  result  that  those  which  had 
the  most  forceful  personnel  got  the  most  effective  results  without 
regard  to  the  relative  importance  of  the  work  each  had  in  hand.  It 
was  probably  this  tendency  as  well  as  the  need  for  planning  for  the 
production  of  many  forms  of  munitions  entirely  new  to  the  War 
Department  that  inspired  the  creation  of  the  General  Munitions 
Board,  the  first  of  the  attempts  at  a  co-ordinating  agency  to  draw 
the  various  departments  and  bureaus  together  for  common  planningT 
The  somewhat  earlier  Munitions  Standards  Board,  constituted  for 
the  purpose  of  standardizing  specifications  and  tools  for  munition 
manufacturing,  was  soon  absorbed  by  the  larger  body. 

The  General  Munitions  Board  was  composed  of  seven  repre- 
sentatives of  the  Army,  nine  of  the  Navy,  the  chairmen  of  the  Advisory 
Commission  Committees  on  Supplies,  on  Raw  Materials,  on  Manu- 
facture, and  on  Medicine,  and  the  chairman  of  the  National  Research 
Council.  In  the  words  of  the  annual  report  of  the  Council  of  National 
Defense,  "The  efforts  of  the  General  Munitions  Board  were  directed 
toward  co-ordinating  the  making  of  purchases  by  the  Army  and  Navy, 
and  assisting  in  the  acquisition  of  raw  materials,  and  establishing 
precedence  of  orders  between  the  Departments  of  War  and  the  Navy, 
and  between  the  military  and  industrial  needs  of  the  country."  Its 


OBSTACLES  TO  RAPID  MOBILIZATION  247 

activities  included  developing  sources  of  supply  for  almost  every  form 
of  munition  from  rifles,  ordnance,  and  shells  to  optical  glass  and 
gauges.  It  set  up  sub-committees  which  contributed  invaluable  aid 
to  the  construction  of  cantonments  and  the  provision  of  storage 
facilities.  It  gave  particular  attention  to  collective  consideration  of 
price  questions.  Yet  inevitably  from  its  size,  its  indefinite  powers, 
and  its  loose  organization  its  functions  were  more  judicial  than  execu- 
tive. The  power  of  decision  rested  in  the  whole  board  rather  than 
in  the  chairman,  which  necessarily  detracted  from  the  driving  force  of 
the  organization.  In  practice  this  scheme  proved  unwieldy,  slow,  and 
inadequate.  The  General  Munitions  Board  began  work  on  April  9. 
It  lasted  until  July  28,  when  it  was  superseded  by  the  War  Industries 
Board,  Mr.  Scott  remaining  as  chairman. 

III.      THE   WAR  INDUSTRIES   BOARD:     FIRST  PERIOD 

The  War  Industries  Board  which  succeeded  the  General  Munitions 
Board  avoided  some  of  the  more  obvious  weaknesses  in  the  old 
organization.  It  was  made  up  of  seven  instead  of  twenty-odd 
members,  all  civilians  with  the  exception  of  one  representative  each 
of  the  Army  and  Navy.  Many  loose  ends  were  thus  drawn  together, 
and  the  new  Board  was  much  more  nearly  an  active  planning  board 
for  industry  than  anything  which  had  preceded  it.  Yet  regarded  as 
an  industrial  cabinet  it  still  occupied  a  very  arromalous  position.  Its 
hazy  authority  could  be  checked  in  many  directions.  As  a  subordi- 
nate body  of  the  Council  of  National  Defense  it  very  definitely  lacked 
power  to  take  the  initiative  in  industrial  policy.  It  was  still  a  clearing- 
house rather  than  a  directorate.  Again,  looked  at  from  the  point 
of  view  of  effective  administration,  such  authority  as  it  possessed, 
whether  delegated  by  members  of  the  cabinet  or  assumed  through  the 
prestige  of  its  position,  was  vested  in  the  Board  as  a  whole  rather 
than  in  the  chairman,  just  as  in  the  case  of  the  General  Munitions 
Board,  'with  a  resultant  loss  in  driving  force.  Finally,  as  in  the  case 
of  the  latter  Board,  its  decisions  could  be  nullified,  not  only  by  the 
heads  of  the  executive  departments  of  the  government,  but  also  by 
chiefs  and  even  subordinate  officials  of  the  purchasing  bureaus,  in 
whom  statutory  responsibility  and  power  over  contracts  still  rested. 
The  bureau  chiefs  were  subject  constantly  to  a  dual  responsibility — 
their  legal  responsibility  to  the  heads  of  their  departments,  and  at  the 
same  time  their  hazy  dependence  for  guidance  on  the  War  Industries 
Board. 


248  ECONOMICS  OF  WAR 

The  board  was  still  a  "co-ordinating"  body  which  depended  for 
its  effectiveness  on  the  co-operation  and  consent  of  individual  bureaus, 
and  their  unwillingness  in  many  instances  to  accept  its  leadership  was 
frequently  a  source  of  embarrassment  both  to  the  government  and  to 
industry.  Aside  from  questions  of  policy  the  Board's  lack  of  a 
definite  status  frequently  produced  unnecessary  confusion  in  the 
mechanics  of  the  dealings  between  manufacturers  and  the  govern- 
ment. In  a  sense  charged  with  supervision  over  production,  the  Board 
often  found  itself  compelled  to  refer  producers  to  individual  bureau 
heads  for  information  and  direction  even  in  questions  involving  several 
of  them  alike.  While  many  of  the  threads  of  industrial  activity 
converged  in  the  Board,  others  remained  unfocused. 

IV.      QUESTIONS   OF  PRICE   AND  PRIORITY 

The  War  Industries  Board  early  set  up  an  organization  under 
Judge  Lovett  to  decide  questions  of  priority  in  production  among  the 
purchasing  departments,  and  the  Priorities  Division  of  the  Board 
was  able  to  do  much  effective  work  toward  eliminating  conflict  in 
war  orders  between  the  several  departments  and  the  Allies.  Yet, 
especially  in  the  earlier  months  of  its  existence,  it  was  much  hampered 
by  special  priority  orders  issued  by  individual  production  depart- 
ments, particularly  the  Quartermaster  Department,  which  in  its 
eagerness  to  expedite  shipment  inaugurated  its  own  special  system  and 
caused  a  great  deal  of  confusion  before  the  plan  was  finally  abolished. 

Yet  the  difficulties  of  establishing  an  effective  system  for  admin- 
istering priorities  in  production  were  largely  of  a  mechanical  nature. 
The  much  larger  problem  of  determining  priority  in  delivery  as 
between  military  and  non-military  needs,  between  food  and  fuel  and 
guns,  between  steel  for  merchant  ships  and  steel  for  destroyers,  and 
between  guns  for  the  Navy  and  guns  for  the  Army,  involving  the  whole 
question  of  large  war  strategy,  was  not  vested  in  the  Board,  nor  indeed 
vested  anywhere  definitely  short/  of  the  President. 

In  the  words  of  the  statement  issued  by  the  Council  of  National 
Defense  creating  the  War  Industries  Board,  the  Board  was  to  "con- 
sider price  factors."  The  actual  form  which  its  "consideration" 
took  through  the  period  from  July  30  to  March  4  was  a  series  of  agree- 
ments with  the  national  representatives  of  various  branches  of 
industry  on  the  price  to  be  paid  for  their  products.  The  price  was  to 
be  charged  alike  to  the  American  government,  the  public,  and  the 
Allies.  While  negotiated  through  collective  bargaining,  naturally 


OBSTACLES  TO  RAPID  MOBILIZATION  249 

these  agreements  had  all  the  force  of  a  price-fixing  law,  and  they 
illustrate  perhaps  better  than  any  other  of  the  activities  of  the  Board 
its  tendency  to  become  a  central,  executive,  industrial  planning  board. 
It  should  be  noted  as  further  illustrating  its  trend  that  in  each  case  the 
President's  definite  approval  was  secured  before  the  price  was  adopted, 
making  the  Board  here  the  direct  agent  of  the  President  rather  than 
of  the  Council,  securing  in  this  way  the  agreement  of  the  several 
purchasing  departments  to  the  price  determined  upon,  and  giving  the 
Board  as  an  ultimate  weapon  in  bargaining  the  power  of  the  depart- 
ments to  commandeer. 

Yet  in  spite  of  the  extensive  character  of  the  Board's  organization 
as  it  existed  in  the  spring  of  1918,  and  its  contact  with  almost  every 
conceivable  phase  of  production  and  purchasing,  it  was  still  very 
largely  what  it  had  been  when  it  was  created  in  July  of  1917,  what  the 
General  Munitions  Board  had  been,  and  what  the  germs  of  both 
organizations  had  been  in  the  days  of  the  early  miscellaneous  advisory 
committees  of  the  Council — a  supplementary  agency  without  author- 
ity to  assume  leadership  or  control  policy.  It  fixed  prices  on  certain 
commodities,  administered  priority,  acted  as  a  clearing-house,  and 
performed  certain  delegated  purchasing  functions,  but  that  was  all; 
initiative  still  rested  with  the  departments. 

V.      THE   WAR  INDUSTRIES   BOARD:     REORGANIZED 

When  on  March  4  of  the  present  year  the  President  appointed 
Bernard  M.  Baruch  chairman  of  the  War  Industries  Board  and 
defined  his  duties  he  did  not,  as. certain  press  reports  have  implied, 
create  an  industrial  dictator.  His  action  did  clear  the  way  for 
Mr.  Baruch's  assumption  of  the  duties  of  a  director  of  industrial  war 
strategy,  of  an  industrial  chief  of  staff — for  the  present  position  of  the 
War  Industries  Board  in  the  American  government  is  comparable 
in  its  relation  to  national  industrial  policy  to  nothing  so  much  as  the 
functions  of  the  general  staff  of  the  Army  in  its  jurisdiction  over 
military  strategy.  After  a  year  of  war  the  direction  of  industrial 
policy  is  placed  in  single  hands,  and  a  central  planning  board  is 
established  for  dealing  not  only  with  the  problems  of  production  and 
purchase  but  with  the  whole  attitude  of  the  government  toward  the 
mobilization  of  business  resources  for  the  prosecution  of  the  war. 
Leadership  has  been  focused  and  an  administrative  channel  opened 
for  the  inauguration  of  a  studied  and  inferentially  constructive 
industrial  policy. 


250  ECONOMICS  OF  WAR 

The  great  advance  which  this  step  marks  is  the  definite  fixing  of 
responsibility  for  the  administration  of  such  a  policy.  It  is  yet  some- 
what early  to  judge  whether  the  powers  of  the  reconstructed  organiza- 
tion will  be  commensurate  with  the  responsibility.  Although  the 
President's  letter  to  Mr.  Baruch  conferred  seemingly  far-sweeping 
powers,  existing  legislative  barriers  still  make  many  of  those  powers 
dependent  in  greater  or  less  measure  on  the  co-operation  and  consent 
of  the  existing  departments  and  bureaus  of  the  government.  Unwil- 
lingness and  delay  in  granting  such  consents  on  the  part  of  depart- 
mental agencies  during  the  past  year  have  hampered  and  even  wrecked 
some  of  the  organizations  which  the  newly  constituted  War  Industries 
Board  has  supplanted.  The  first  six  months  of  the  war  produced 
indeed  a  constant  succession  of  experiences  with  the  unwillingness  of 
bureau  officials  to  relinquish  in  any  form  the  responsibility  and  powers, 
especially  for  placing  contracts,  which  were  theirs  by  congressional 
enactment.  The  interdepartmental  committees,  munitions  boards, 
and  like  agencies  which  sought  to  draw  together  for  common  planning 
the  scattered  and  apparently  conflicting  interests  of  the  production 
and  purchase  bureaus  which  had  to  deal  with  industrial  problems  each 
encountered  the  same  handicaps. 

Varying  in  the  ingenuity  of  their  structure,  these  co-ordinating 
boards  fell  alike  before  the  fundamental  weakness  that  their  common 
action  and  their  power  depended  on  the  voluntary  delegation  of 
authority  by  bureaus  inspired  with  a  spirit  of  competition  in  efficiency 
which  transcended  their  desire  to  work  together  for  a  common  cause. 
This  is  said  in  no  spirit  of  undue  criticism  of  the  men  who  composed 
them.  It  is  undoubtedly  too  much  to  expect  of  human  nature  that 
an  official  charged  with  the  detailed  administration  of  a  separately 
constituted  government  agency  should  be  able  to  regard  the  problems 
of  a  brother-official  as  of  equal  urgency  with  his  own.  The  British 
experience  in  the  early  days  of  the  war  with  "groaning  cabinets  "- 
planning  bodies  intended  to  undertake  executive  action,  but  composed 
of  officials  each  charged  with  administrative  duties  and  thus  with 
special  interests — was  not  far  unlike  our  own.  An  executive  arbiter 
with  the  final  voice  on  all  decisions  is  alone  able  to  prevent  such 
bodies  from  becoming  mere  disorganized  debating  societies. 

Yet  there  are  at  least  three  excellent  reasons  for  predicting- more 
effective  results  from  the  War  Industries  Board  as  now  constituted. 
The  first  is  that  the  President,  far  more  definitely  and  emphatically 
than  before,  has  thrown  the  vast  prestige  of  his  office  behind  the 


251 

agency  and  has  delegated  to  Mr.  Baruch  in  no  uncertain  terms  many 
functions  of  an  extra-legal  but  widely  extended  character  which  the 
presidency  has  gradually  assumed  during  the  past  fifteen  years  and 
especially  since  the  beginning  of  the  war.  This  in  itself  is  a  guaranty 
that  the  influence  of  the  War  Industries  Board  will  be  determined  by 
no  narrow  legalistic  interpretation  of  its  powers. 

The  second  is  that,  with  the  exception  of  its  functions  in  the 
determination  of  prices,  the  final  decision  as  to  the  action  of  the  Board 
is  vested  by  the  President  in  the  chairman  exclusively  instead  of  as 
hitherto  in  the  Board  as  a  whole.  This  gives  hopeful  promise  of  quick 
and  decisive  action  and  opens  the  way  to  a  courageous  and  effective 
assumption  of  leadership  by  the  man  to  whom  he  has  delegated  the 
functions  which  his  letter  defines.  While  it  may  yet  be  too  soon  to 
reach  a  conclusion,  the  methods  adopted  by  the  new  chairman  and 
his  choice  of  assistants  so  far  show  no  reason  for  questioning  the 
confidence  which  the  President  has  placed  in  him,  and  with  that 
whole-hearted  confidence  behind  him,  as  the  American  war  govern- 
ment is  now  constituted,  there  seems  little  reason  to  doubt  his  ability 
to  carry  through  any  policy  which  he  may  decide  to  inaugurate. 

Finally,  the  passage  by  Congress  of  the  so-called  "Overman" 
bill  gives  the  President  power  to  redistribute  the  powers  of  the 
executive  departments  in  any  way  which  he  may  wish,  and  undoubt- 
edly makes  available  to  the  President  the  power  to  remove  any 
existing  legislative  obstacles  to  the  assumption  of  full  control  over 
governmental  industrial  policy  by  the  War  Industries  Board  and  its 
investment  with  any  or  all  necessary  prerogatives  now  held  by  the 
several  existing  production  and  contracting  bureaus  and  departments. 

In  the  actual  machinery  of  the  War  Industries  Board  itself  there 
have  been  and  probably  will  have  to  be  few  changes.  The  Board 
as  it  now  exists  has  under  it  special  divisions  and  sections  for  handling 
particular  supply  problems,  each  in  charge  of  experts.  The  Raw 
Materials  Division  has  specialists  for  such  materials  as  steel  and  its 
products,  non-ferrous  metals,  chemicals  and  explosives,  lumber, 
building  materials,  and  the  like,  each  with  its  complement  of  by- 
products. The  Division  on  Finished  Products  and  the  Conversion  of 
Industry  includes  such  materials  as  cotton  duck,  machine  tools, 
electrical  equipment,  optical  glass,  and  a  host  of  other  things.  Fre- 
quently of  course  the  Board  relies  on  the  technical  staff  of  one  of  the 
regular  supply  departments  of  the  government  for  handling  particular 
commodities. 


252  ECONOMICS  OF  WAR 

Acting  as  the  directing  agency  in  the  mechanism  of  the  Board's 
organization  is  a  "Requirements  Division"  composed  of  the  heads 
of  various  sections  of  the  War  Industries  Board,  including  the 
Priorities  Division,  and  representatives  of  the  Army,  the  Navy,  the 
Emergency  Fleet  Corporation,  the  Food  Administration,  the  Red 
Cross,  the  Railroad  Administration,  the  Fuel  Administration,  and 
the  Allied  Purchasing  Commission — practically  all  the  government 
agencies  which  come  in  touch  with  the  industrial  field.  To  this 
agency  the  supply  departments  of  the  government  furnish  con- 
tinually estimates  of  their  future  needs,  keeping  the  division  con- 
stantly in  touch  with  the  progress  of  their  business,  so  that  their 
requirements  can  be  planned  for  far  ahead.  In  turn  the  Require- 
ments Division  delegates  to  the  proper  division  of  the  Board  or  to 
one  of  the  supply  departments  itself,  as  the  case  may  be,  the  task  of 
meeting  the  need.  Of  this  division  the  chairman  of  the  War  Industries 
Board  is  an  ex-officio  member  and  is  thus  constantly  in  touch  with 
the  daily  progress  of  business,  although  not  compelled  to  devote 
himself  to  the  detailed  administration  of  it. 

Priority  of  production  is  administered  as  before  by  the  Priorities 
Division,  but  a  new  agency  has  been  set  up  by  the  Board  for  the 
administration  of  priority  of  delivery,  of  which  Mr.  Baruch  is  again 
an  ex-omcio  member,  and  which  includes  representatives  of  all  the 
executive  departments  and  special  administrations,  such  as  food  and 
fuel,  which  touch  industrial  questions,  joined  together  for  common 
planning.  It  will  be  noticed  that  this  agency  hardly  yet  meets  the 
requirements  for  a  general  war  priority  board  to  determine  the  largest 
questions  of  national  strategy  and  to  join  military  with  industrial 
strategy.  These  decisions  apparently  rest  now  chiefly  with  the 
General  Staff  of  the  Army  if  not  directly  with  the  President  himself. 
Yet  the  new  Priorities  Board  in  the  War  Industries  organization  is  a 
long  step  in  the  right  direction. 

Finally  the  determination  of  price  is  now  vested  in  a  special 
committee,  of  which  Mr.  Robert  S.  Brookings,  of  the  War  Industries 
Board,  is  chairman,  and  of  which  Mr.  Baruch  is  again  an  ex-officio 
member.  It  includes  General  Palmer  E.  Pierce,  member  of  the  War 
Industries  Board  and  Surveyor-General  of  Supplies  for  the  War 
Department;  Paymaster  Hancock,  of  the  Bureau  of  Supplies  and 
Accounts  of  the  Navy  Department;  Dr.  H.  A.  Garfield,  Fuel  Admin- 
istrator; F.  W.  Taussig,  chairman  of  the  Tariff  Commission;  W.  J. 
Harris,  chairman  of  the  Federal  Trade  Commission;  and  Hugh 
Frayne,  the  labor  member  of  the  War  Industries  Board.  The  Price 


OBSTACLES  TO  RAPID  MOBILIZATION  253 

Committee  thus  includes,  officials  having  to  do  not  only  with  the 
commodities  particularly  to  be  considered,  but  also  the  basic  factors 
entering  into  a  just  price  determination.  This  again  is  a  decided 
step  in  advance  toward  fundamental  planning. 

VI.      FURTHER  CO-ORDINATION  REQUIRED 

From  the  present  trend  of  events  the  War  Industries  Board 
promises  to  become  the  sole  directing  agency  between  the  government 
and  industry.  Backed  by  the  power  of  the  President  to  commandeer, 
to  withhold  fuel,  and  in  other  ways  to  force  the  halting  into  line,  it 
can  mold  the  country's  industrial  system  almost  as  it  will — whether 
in  organizing  the  nation  for  war  or  in  directing  the  lines  along  which 
it  shall  return  to  normal  conditions  when  peace  comes.  In  a  system 
of  government  such  as  ours,  where  the  responsibility  for  directing  the 
war  rests  almost  exclusively  in  the  hands  of  the  President,  and  where 
his  power  ultimately  becomes  almost  absolute,  the  Board  has  been 
shaped  into  a  very  potent  instrument. 

Yet  powerful  as  it  may  become,  subject  only  to  the  jurisdiction 
of  the  President,  it  is  well  to  remember  that  in  a  comprehensive 
national  war  plan  it  cannot  stand  alone.  Its  policies  must  be  subject 
to  the  administration's  general  strategy  in  the  war — for  instance,  to 
the  amount  of  munitions  in  comparison  with  the  number  of  men  or 
the  amount  of  food  that  it  wishes  to  send  abroad  at  any  given  time. 
The  munitions  program  and  the  conversion  of  industry  to  war  purposes 
must  be  governed  by  the  ultimate  end  in  view.  In  addition,  one  of 
the  great  factors  in  production — the  labor  factor — is  being  admin- 
istered by  another  government  agency,  and  it  is  obvious  that  priority 
in  the  labor  supply  must  go  hand  in  hand  with  priority  in  materials.1 

Finally  the  War  Industries  Board  is  now  virtually  directing  the 
government's  price  policy.  Statesmanship  necessarily  demands  the 
most  carefully  studied  relationship  between  prices  and  war  finance. 
Great  Britain,  with  her  flexible  parliamentary  system,  found  her 
peace-time  budget  system  easily  adaptable  to  war  and  has  been  able 
to  correlate  her  war  taxation  and  her  policy  toward  war  profits.  In 
the  United  States  the  responsibility  for  regulating  prices — a  "volun- 
tary" but  none  the  less  effective  system  of  regulation — has  been 
assumed  by  the  President,  acting  through  the  War  Industries  Board, 
while  the  ultimate  responsibility  for  taxation  rests  exclusively  with 
Congress,  a  constitutionally  co-ordinate  branch  of  the  government. 

1  ED.  NOTE. — Co-ordination  here  has  since  been  accomplished. 


VII 

WAR-TIME  REGULATION  OF  TRADE  AND 
INDUSTRY 

Introduction 

With  this  chapter  we  begin  a  study  of  the  more  specific  problems 
of  economic  control  to  which  the  war  has  given  rise.  The  organization 
of  all  the  resources  of  each  belligerent  with  an  eye  single  to  military 
victory  has  required  the  development  of  elaborate  machinery  for  the 
regulation  of  trade  and  industry. 

The  dislocations  of  trade  that  are  occasioned  by  a  war  such  as 
the  present  one  extend  literally  "unto  the  ends  of  the  earth."  The 
war  has  revealed  to  the  laymen,  as  no  amount  of  theoretical  statement 
could  have  done,  the  interdependence  of  the  trade  and  industry  of  the 
world.  Neutral  as  well  as  belligerent  economic  life  has  been  pro- 
foundly affected.  In  the  case  of  the  neutrals,  after  a  brief  chill  at 
the  outbreak  of  the  war,  the  enormous  demand  for  war  materials  in 
the  belligerent  nations  gave  an  unprecedented  stimulus  to  industrial 
activity,  which  resulted  for  a  year  or  so  in  prosperity  which  was  fairly 
well  diffused  among  the  various  classes.  In  time,  however,  as  the 
energy  of  the  world  becomes  more  and  more  devoted  to  the  arts  of 
destruction,  war  casts  its  darkening  shadows  over  neutral  as  over  belli- 
gerent lands.  The  economics  of  an  international  division  of  labor 
based  upon  exchange  disappear  as  soon  as  the  control  of  trade  and 
industry  by  contending  powers  renders  free  exchange  no  longer 
possible;  and  then  there  stands  revealed  the  true  significance  of 
international  economics. 

The  international  exchanges  (Section  XXIV)  present  one  of  the 
most  complicated  problems  of  control.  In  normal  periods  the 
exchanges  work  automatically,  but  in  time  of  war,  the  disruption 
of  shipping,  the  practical  cessation  of  foreign  investments,  the  cur- 
tailment of  gold  movements,  the  enormous  trade  that  is  handled 
directly  by  governments  on  other  than  business  principles,  etc.,  require 
the  development  of  an  entirely  new  mechanism  for  regulating  foreign 
trading  and  business  operations. 

254 


WAR-TIME  REGULATION  OF  TRADE  AND  INDUSTRY       255 

The  shifting  of  the  world's  gold  supply  (Section  XXV)  had 
profound  effects  in  the  United  States  long  before  our  entry  into  the 
war.  It  facilitated  a  credit  expansion  that  was  perhaps  of  service 
in  connection  with  the  enormous  expansion  of  business  activity  which 
European  demands  occasioned,  but  it  was  at  the  same  time  doubtless 
instrumental  in  causing  a  general  rise  of  prices,  and  the  social  inequal- 
ities that  accompany  such  an  event.  It  is  significant  in  this  con- 
nection that  the  total  of  bank  deposits  in  Japan  has  substantially 
increased  during  the  war;  but  that  the  deposits  of  the  masses  have 
declined.  Food  riots  and  revolutionary  propaganda  are  certain  to 
be  the  eventual  fruits  of  such  unbalanced  wealth  accumulation.  The 
re-allocation  of  the  supply  of  gold  at  the  end  of  the  war  also  raises 
problems  of  extreme  delicacy  as  well  as  of  far-reaching  importance. 

What  will  be  the  ultimate  results  of  the  vast  experimentation  of 
government  control  of  trade  and  industry  which  the  exigencies  of  war 
have  required  ?  To  what  extent  will  it  prove  serviceable  in  the  inter- 
ests of  peace  ?  These  queries  inevitably  present  themselves  here, 
though  in  the  nature  of  the  case  they  cannot  now  be  answered. 
Chapter  xiv,  however,  attempts  a  preliminary  appraisal  of  some  of  the 
ultimate  effects  of  this  social  experimentation  and  its  relation  to 
long-run  national  efficiency. 

XXIII.     Trade  Dislocations 
i.    THE  NATURE  OF  TRADE  DISORGANIZATION1 

The  disturbance  to  industry  which  follows  in  the  wake  of  war  is 
international  as  well  as  national.  In  fact,  the  more  a  nation  has 
depended  upon  others,  the  more  likely  it  is  to  be  seriously  crippled  by 
an  attempt  to  meet  new  conditions.  This  disorganization  cuts  down 
the  productive  efficiency  of  the  peoples  who  are  not  at  war.  We  all 
know  that  in  general  goods  are  produced  in  the  localities  where 
favorable  conditions  make  costs  lowest,  and  that  through  a  world-wide 
division  of  labor  nations  satisfy  each  other's  wants.  It  has  come 
about  that  the  countries  of  Western  Europe  have  specialized  in  the 
production  of  manufactured  articles  and  have  come  to  depend  upon 
Russia,  the  Near  East,  the  French  and  English  colonies,  and  the  two 
Americas  for  their  raw  materials  and  a  large  part  of  their  food.  In 
general,  industry  and  business  have  been  arranged  upon  the  assump- 
tion that  normal  markets  and  means  of  communication  are  to  remain 

1  An  editorial. 


256  ECONOMICS  OF  WAR 

open.  By  seriously  crippling  the  communication  upon  which  the 
division  of  labor  depends  the  war  is  making  specialization  between 
nations  more  expensive.  It  takes  away  markets,  increases  the  costs 
and  makes  difficult  of  purchase  the  materials  essential  to  production, 
and  robs  of  its  effectiveness  the  contribution  which  the  in'ternational 
organization  of  industry  makes  to  the  economy  of  production.  Out 
of  such  maladjustments  in  economic  organization  comes  a  loss  in 
economy  of  effort, and  in  the  use  of  resources  which  affect,  along  with 
the  complementary  processes  of  the  industrial  system,  the  sequence 
of  acts  which  culminates' in  the  production  of  the  concrete  commodities 
essential  to  the  maintenance  of  health  and  efficiency  and  to  the  waging 
of  effective  warfare. 

2.    THE  WAR'S  EFFECTS  IN  NEUTRAL  SCANDINAVIA1 

To  describe  conditions  in  Scandinavia  toward  the  end  of  1916  is 
a  difficult  matter.  It  cannot  be  done  with  a  few  words  or  in  a  couple 
of  lines.  The  picture  which  unrolls  itself  before  one's  mental  eye  is 
kaleidoscopic — it  is  a  picture  of  many  colors,  a  bewildering  variety 
of  human  conditions,  one  entangled  mass  of  political  uncertainty, 
commercial  aggressiveness,  variations  of  financial  responsibility,  and 
social-economic  development. 

What  is  the  general  impression  ?  The  vague,  but  not  altogether 
unsatisfactory  one  is  that  the  people  of  the  three  nations  are  becoming 
somewhat  more  anxious  than  they  were  in  the  heyday  of  previous 
phases  of  war-time,  that  they  seem  to  have  a  better  judgment  regard- 
ing the  isolated  economic  situation  of  their  countries  and  the  necessity 
of  careful  movement  in  political  affairs,  perhaps,  also  that  voices  of  the 
more  sober  tenor  in  the  nations  are  now  heeded  more  thart  in  the  past. 
The  war  has  all  the  time  been  near.  It  was  near  enough  to  fear  the 
worst  in  the  beginning  of  the  catastrophe.  Then  came  the  feeling  of 
more  certainty  and  the  chance  of  making  profit  by  courageous  and  able 
individual  enterprise.  This  condition  of  things  was  soon  followed  by  a 
practically  insatiable  demand  for  every  kind  of  commodities  and  goods 
which  enabled  any  man,  so  to  speak,  to  make  a  fortune  merely  by 
selling  at  fabulous  prices.  The  international  shortage  of  tonnage 
made  freights  soar;  shipping  shares  became  attractive.  A  world  of 
hitherto  unknown  chances  opened  to  the  ever  present  speculative 
trait  in  human  nature.  The  ordinarily  slow  Scandinavian  was  quick 

1  By  Fin  Lund.  Adapted  from  The  Americus  (February,  1917),  pp.  5-7. 
Copyright  by  the  National  City  Bank,  New  York. 


WAR-TIME  REGULATION  OF  TRADE  AND  INDUSTRY       257 

enough  to  discover  this;  he  bought  and  he  sold,  he  promoted,  and  he 
ordered  new  ships. 

These  were  the  advantages  of  being  so  near  the  war,  but  little  by 
little  in  the  beginning,  then  by  seven-mile  jumps,  the  war  closed  in  on 
the  Scandinavian  countries,  the  mailed  fist  made  its  stern  pressure  felt, 
and  when  Germany's  note  to  Norway  on  the  question  of  U-boats  in 
Norwegian  waters  was  presented  war  itself  loomed  large  on  the  home 
threshold,  and  displayed  its  dreaded  teeth  at  close  quarters.  The 
Allies  would  not  allow  goods  to  be  imported  "for  the  sole  purpose  of 
re-selling  them  to  the  Central  Powers,"  and  the  latter,  on  their 
part,  entertained  the  same  point  of  view  as  to  their  products. 
Importations  into  Scandinavia  were  curtailed  more  and  more 
rigorously. 

Everything  which  could  be  sold  had  been  sold  in  the  beginning 
of  the  war.  Now,  because  imports  were  falling  off  rapidly  and  also 
with  due  understanding  of  international  exigencies,  the  Scandinavian 
governments  started  their  policy  of  embargoing  exports,  so  that  at 
present  hardly  a  thing  can  be  sent  out  of  any  of  the  countries.  The 
index  of  the  Swedish  official  list  of  laws,  dated  October  31,  1916,  for- 
bidding exports,  mentions  more  than  1,100  articles,  and  even  that  is 
expressly  called  only  a  help  to  find  the  commodity  looked  for  and  does 
not  pretend  to  be  a  complete  index.  The  result  was,  of  course,  that 
trade,  compared  to  former  volumes,  decreased  very  considerably,  and 
the  energy  as  well  as  the  wealth  actually  earned  was  turned  towards 
speculation  on  the  local  exchange. 

To  supply  all  the  people  of  Scandinavia  with  the  necessities  of  life 
is  a  problem  which  is  already  exceedingly  difficult  to  manage.  Law 
upon  law,  one  governmental  decree  after  the  other,  tries  to  regulate 
the  distribution  of  commodities  as  well  as  their  prices.  The  majority 
of  the  people  are  in  actual  need.  Prices  soar,  and  it  really  does  not 
matter  to  the  ordinary  man  whether  the  cause  of  this  rise  in  the  cost  of 
living  is  a  too  big  circulation  of  paper  currency  or  a  limited  supply  of 
goods.  What  confronts  him  is  the  fact  itself,  not  theories,  and  he 
realizes  all  too  well  that  he  cannot  make  "  both  ends  meet."  There  is, 
generally  speaking,  no  doubt  that  under  normal  circumstances  the 
laws  of  supply  and  demand  will  work  satisfactorily  to  the  community 
and  that  artificial  interference  is  only  harmful.  At  present  the  supply 
is  short,  consequently  the  demand  and  the  consumption  must  be 
controlled  to  secure  a  fair  distribution.  Sugar  cards,  which  have 
been  used  in  Sweden  for  months,  and  which  were  decreed  in  Denmark 


258  ECONOMICS  OF  WAR 

to  go  into  force  January  ist,  1917,  are  an  example  of  the  means 
employed  to  control  the  distribution  and  to  prevent  waste  of  supplies. 
While  on  the  one  hand  one  sees  new  millionaires  permit  themselves 
to  indulge  in_the  most  senseless  luxuries,  which  incidentally  add  con- 
siderably to  the  high  cost  of  living  under  circumstances  like  these,  the 
less  well-to-do  must  actually  go  without  many  things  formerly  con-_ 
sidered  necessities.  Collections  of  money  and  food-stuffs  are  now 
made  all  over  Scandinavia  to  help  the  less  fortunate  through  the 
winter.  The  poorer  population  of  the  cities  is  especially  considered. 
It  is  even  difficult  to  get  a  roof  over  one's  head.  Proposals  and 
counter-proposals  to  remedy  the  evil  are  forthcoming,  but  no  real 
remedy  seems  to  be  in  sight. 

3.     GERMAN  FOREIGN  TRADE  IN  WAR  TIME1 

When  the  war  broke  out,  the  German  ships  were  driven  off  the 
seas,  traffic  with  over-sea  countries  became  difficult;  it  was  made 
impossible  later  on  by  the  allied  blockade.  Trade  with  neutral 
countries  was  affected  by  numerous  prohibitions  against  exportation 
issued  both  in  Germany  and  in  the  neutral  countries.  Letters, 
newspapers,  or  other  information  from  abroad  could  not  be  obtained 
currently,  and  thus  a  survey  of  market  conditions  became  impossible. 
Domestic  trade  suffered  when  the  public  suddenly  developed  the 
practice  of  extreme  thrift,  some  because  their  income  had  been 
reduced,  others  because  the  war  had  made  them  apprehensive  and 
nervous.  Trade  also  suffered  from  the  irregularities  of  the  trans- 
portation services,  as  all  traffic  would  cease  at  times  when  large 
movements  of  troops  were  to  be  undertaken.  The  war,  on  the  other 
hand,  created  an  enormous  demand  for  all  goods  serving  directly  or 
indirectly  the  purposes  of  warfare.  The  dealers  in  articles  of  luxury 
lost  most  of  their  customers,  while  the  war  trades  prospered.  Pro- 
fessional men  saw  their  incomes  dwindling.  Raw  materials  and  wares 
formerly  imported  on  a  large  scale  became  scarce  and  their  prices  rose, 
while  the  warehouses  were  filled  with  articles  intended  for  exportation 
which  could  not  be  sold  until  later.  Many  firms  suffered  from  their 
inability  to  collect  claims  due  them  from  foreign  customers.  As  the 
war  proceeded,  and  the  prospects  of  victory  diminished,  the  govern- 
ment gradually  extended  its  control  over  both  industry  and  trade. 

1  By  Chauncey  Depew  Snow  and  J.  J.  Krai.  From  Department  of  Commerce, 
Miscellaneous  Series  No.  65,  pp.  23-24. 


WAR-TIME  REGULATION  OF  TRADE  AND  INDUSTRY       259 

Although  many  of  the  industries  of  Germany  have  succeeded  in  a 
large  measure  in  adapting  themselves  to  the  new  conditions,  trade 
has  found  no  opportunity  for  readjustment,  and  the  merchant  has 
suffered  much  more  than  the  manufacturer.  The  former,  as  a  class 
distinct  from  the  producer,  could  be  dispensed  with,  whereas  the 
latter  had  indispensable  work  to  perform  for  war  needs.  The  imperial 
government  and  the  state  of  Prussia  are  now  the  largest  purchasers  of 
goods,  and  they  buy  directly  from  associations  of  producers,  the 
middlemen  having  been  eliminated  in  most  cases;  many  of  them  are 
walking  the  streets.  The  men  who  are  selling  syndicated  products 
are  not  merchants;  they  are  officials  or  employees  of  the  producers, 
and  protests  have  been  made  against  their  claiming  membership  on 
various  boards  as  "representatives  of  the  trade." 

Trade  with  neutral  countries  increased  considerably  for  a  time,  as 
they  offered  the  only  available  medium  for  trade  with  foreign 
countries.  This  trade  was  gradually  restricted  and  cut  off  both  by 
the  allied  blockade  and  the  growing  needs  of  the  neutrals  themselves. 
Germany  continued  as  a  buyer  of  foodstuffs  and  raw  materials;  the 
neighboring  neutrals  required  coal,  iron  wares,  chemicals,  and  fer- 
tilizers from  Germany  in  exchange. 

XXIV.    The  International  Exchanges 
i.     GREAT  BRITAIN'S  FOREIGN-EXCHANGE  PROBLEM1 

England,  at  the  commencement  of  the  war,  was  in  far  the  strongest 
position  of  any  of  the  Allies  to  purchase  munitions  and  other  materials 
from  foreign  countries  both  for  herself  and  her  Allies.  She  was  in  fact 
the  greatest  creditor  nation  in  the  world.  France  too  was  a  powerful 
creditor  nation,  but  not  so  powerful  as  England,  and  at  the  commence- 
ment of  the  war  her  export  commerce  received  unfortunately  a  much 
more  staggering  blow  than  England's.  While,  therefore,  France  has 
made  every  possible  effort  financially,  the  greater  burden  fell  to  us. 
On  the  other  hand,  Russia  and  Italy  were  debtor  nations,  and  even 
before  the  war  had  to  borrow  in  order  to  balance  their  foreign  account. 
Serbia  was,  of  course,  in  the  same  position,  and  Belgium,  too,  has  been 
in  that  position  since  the  commencement  of  the  war.  All  these 
nations  have  required  assistance  in  making  purchases  abroad.  From 
the  commencement  of  the  war,  therefore,  we  have  had  to  assist  our 

1  By  R.  H.  Brand  (see  p.  191).  Adapted  from  an  unpublished  address  before 
the  American  Bankers  Association,  September,  1917. 


260  ECONOMICS  OF  WAR 

Allies  as  well  as  our  Dominions  in  making  foreign  purchases,  and 
have  in  these  three  years  lent  them  not  less  than  six  billion  dollars. 

Consider  England's  position  in  1913  as  regards  her  balance  of 
trade.  In  that  year  her  imports  were  valued  at  $3,210,000,000,  her 
exports  at  $2,560,000,000.  But  it  has  usually  been  estimated  that 
England  was  owed  about  $1,610,000,000  annually  by  foreign  countries 
for  interest  on  capital  lent,  for  shipping,  freights,  and  for  banking, 
insurance,  and  other  commissions,  etc.  If  this  sum  is  added  to  her 
exports,  then  the  total  amount  owed  to  her  was  $4,170,000,000  as 
against  $3,210,000,000  which  she  owed  for  her  imports.  In  other 
words,  she  had  a  favorable  balance  of  about  $960,000,000,  which  was 
lent  abroad.  She  was  therefore  in  a  very  comfortable  position.  The 
war,  however,  has  altered  that  position  greatly  to  her  disadvantage. 

The  tonnage  of  our  ordinary  commercial  imports  has  constantly 
been  falling  off  since  the  commencement  of  the  war  and  is  now  enor- 
mously reduced.  Although  the  huge  increase  in  prices  has  actually 
enormously  increased  the  value  of  our  imports  and  maintained  that 
of  our  exports  at  nearly  their  pre-war  figure,  our  export  trade  must 
in  fact  have  been  enormously  reduced  in  tonnage,  because  it  is  mostly 
to  South  America  and  the  Far  East,  and  in  order  to  provide  tonnage 
nearer  home  all  our  ships  have  been  taken  by  the  government  off 
these  routes  and  brought  to  the  North  Atlantic.  But  the  excess  of 
commercial  imports  over  exports  is  now  about  $1,950,000,000  a  year 
instead  of  $630,000,000,  altogether  apart  from  our  huge  government 
imports. 

It  is  impossible  to  say  to  what  extent  our  earnings  from  freights, 
interest,  and  commissions  have  been  affected  by  the  war,  but  unques- 
tionably they  have  not  covered  anything  like  the  above  extremely  large 
debit  balance.  In  consequence  we  have  been  obliged  for  very  many 
months  to  take  exceptional  measures  to  maintain  our  exchange  with 
the  United  States,  from  whom  our  chief  purchases  are  made. 

In  fact,  these  unfavorable  influences  of  the  war  began  to  tell  very 
soon  on  our  external  position.  Notwithstanding  our  drawing  in,  in 
the  first  months  of  the  war,  money  which  we  had  lying  all  over  the 
world,  which  I  believe  amounted  to  a  very  large  sum,  and  notwith- 
standing our  great  exports  of  gold,  there  was  by  June,  1915,  a  collapse 
in  our  American  exchange,  and  it  was  clear  that  much  more  drastic 
measures  to  maintain  it  were  required.  These  measures  could  only  be 
the  mobilization  of  all  our  liquid  assets  salable  abroad;  and  since  that 
date  it  may  be  said  that  we  have  carried  through  completely  this 


WAR-TIME  REGULATION  OF  TRADE  AND  INDUSTRY       261 

mobilization  and  placed  those  assets  at  the  disposal  of  our  Allies,  so 
far  as  they  were  not  needed  to  pay  our  debts. 

In  the  first  place,  the  United  States  has  received  in  gold  over 
$1,000,000,000  since  August,  1914,  of  which  the  major  portion  must 
have  been  from  the  British  Empire. 

In  the  second  place,  we  have  taken  the  most  drastic  measures  to 
insure  that  every  holder  of  American  securities,  or  indeed  any  other 
securities  which  we  could  sell  or  borrow  against  here,  should  either 
sell  or  lend  such  securities  to  the  government.  We  have  in  fact,  I 
think,  drained  our  country  dry  of  them. 

While  the  exchanges  between  the  Allies  and  nearly  all  neutral 
countries  are  depreciated,  the  exchange  between  New  York  and 
London  has  by  means  of  the  above  measures  been  maintained  practi- 
cally at  gold  point  to  the  very  great  advantage,  not  only  of  Great 
Britain,  but  of  our  Allies  and  also  of  the  United  States,  and  in  fact  of 
every  nation,  except  our  enemies,  because  all  are  interested  in  uninter- 
rupted trade. 

In  peace  time  the  exchanges  find  their  own  level.  If  a  nation  is 
living  too  extravagantly,  the  fall  in  its  exchange  will  naturally  tend  to 
correct  its  extravagance,  because  imports  tend  to  be  restricted  and 
exports  to  be  encouraged.  Naturally,  if  the  exchanges  are 'artificially 
maintained,  that  tendency  ceases  to  operate.  That  is  of  course  a  dis- 
advantage, but  it  would  be  more  of  a  disadvantage  if  it  were  not  that 
other  and  even  stronger  influences  are  restricting  ordinary  commercial 
imports  into  European  belligerent  countries. 

I  have  already  quoted  the  very  striking  figures  of  the  tonnage  of 
imports  into  Great  Britain,  which  sufficiently  prove  that  practically 
no  imports  are  now  being  made  except  such  as  are  absolutely  necessary. 

Of  course  no  nation  could  permanently  tolerate  such  unfavorable 
trade  balances  as  those  from  which  the  Allies  in  Europe  are  now 
suffering.  They  can  only  do  so  now  and  keep  their  exchanges  with 
the  United  States  steady  by  borrowing  immense  sums  here.  But 
the  war  itself  is  not  permanent,  and  the  question  is  merely  whether  the 
present  state  of  affairs  can  be  continued  long  enough  to  enable  all  the 
enemies  of  the  Central  Powers  to  exert  their  full  strength  and  win  a 
final  victory. 

You  will  no  doubt  all  have  noticed  that  the  credits  granted  Great 
Britain  have  been  greater  than  those  granted  to  any  other  Ally.  The 
reasons  are  simple,  though  they  are  not,  I  think,  generally  understood. 
We  have,  in  the  first  place,  the  largest  war  and  munition  program 


262  ECONOMICS  OF  WAR 

of  any  Ally;  in  the  second  place,  as  I  have  shown  above,  we  are,  with 
the  exception  of  the  United  States,  the  greatest  industrial  arsenal 
among  the  Allies ;  that  necessarily  involves  large  imports.  We  send  a 
great  deal  of  steel  from  England  to  our  Allies;  we  have  to  replace  it 
by  steel  from  here.  We  make  rifles  for  Russia;  we  have  to  import  the 
steel  to  make  them.  We  send  boots  to  Russia;  we  have  to  import  the 
leather  needed.  These  examples  might  be  multiplied  many  times. 
Thirdly,  we  extend  large  credits  in  England  to  our  Allies,  some  part  of 
which  they  may  use  anywhere  in  the  world,  and  this  part  may  ulti- 
mately come  back  on  the  sterling  exchange  in  New  York.  Lastly,  it  is 
well  known  that  neutrals  who  are  owed  money  by  England  unfortu- 
nately find  it  convenient  to  utilize  the  sterling  exchange  in  New  York 
in  order  to  recoup  themselves  in  dollars.  But  so  also  do  neutrals  who 
are  owed  money  by  the  other  Allies.  So  long  as  we  maintain  the 
sterling  exchange  this  appears  to  be  inevitable,  and  the  burden  of 
financing  both  our  own  and  our  Allies'  trade  tends  to  fall  on  that 
exchange.  It  is  by  our  maintenance  of  this  sterling  exchange  that  the 
continuance  of  our  Allies'  trade  is  rendered  possible.  The  main- 
tenance of  the  sterling  exchange  means  the  maintenance  of  the  allied 
exchanges.  All  these  factors  together  exert  an  immense  influence. 
If  England  had  had  only  herself  to  finance  since  the  beginning  of  the 
war,  and  indeed  even  if  she  had  only  herself  to  finance  now,  it  is  quite 
possible  she  would  not  have  needed  to  borrow  at  all  abroad. 

2.    TRADE  AND  "FINANCIAL"  BALANCE  OF  THE 
UNITED  STATES1 

I.      THE  BALANCE  OF  TRADE 

A  significant  feature  of  our  trade  expansion  during  the  last  three 
years  has  been  an  enormous  increase  in  the  excess  of  exports  of 
merchandise  over  imports — or  a  marked  addition  to  our  so-called 
''favorable  balance  of  trade,"  as  shown  by  Table  I. 

The  excess  in  1917  was  probably  greater  than  that  indicated  by 
the  figures  in  the  table,  as  quantities  of  merchandise,  including  war 
material,  food,  and  clothing  were  sent  out  of  the  United  States  by  the 
government  for  the  use  of  our  troops  in  Europe,  and  such  material, 

1  By  Abraham  Berglund.  Adapted  from  "Our  Trade  Balance  and  Our 
Foreign  Loans,"  Journal  of  Political  Economy,  XXVI  (1918),  732-43. 

ED.  NOTE. — Mr.  Berglund  is  professor  of  political  economy  at  the  University 
of  Washington.  He  is  now  working  with  the  Federal  Trade  Commission. 


WAR-TIME  REGULATION  OF  TRADE  AND  INDUSTRY       263 

when  passing  out  of  the  country  on  our  own  transports,  goes  without 
being  recorded.    The  same  is  true  of  articles  which  the  government 

TABLE  I 

EXPORTS  AND  IMPORTS  OF  MERCHANDISE  DURING  THE  YEARS  1912  TO  1917 

INCLUSIVE 


Calendar  Year 

Exports 

Imports 

Excess  of  Exports 
over  Imports 

IQI2  .  . 

$2,  ^OQ,  217,00'? 

$I,8l8,O73,O1Ci; 

$";8l  14.4.  o?8 

IQI3  .  . 

2,484,018,292 

i,  702,  ^06,4.80 

691  421  812 

1914  

2,113,624,050 

1,789,276,001 

•?  24,34.8  ,04,0 

1915  

3,554,670,847 

i.778.so6,6os 

1,776,074,1  <2 

1916  

5,482,641,101 

2-3OI.6tS.33S 

•?,  001,00^,  7  66 

1917  

6,231,244,976 

2,0^2,4.67,  QZZ 

3,278,777,021 

may  be  importing  in  the  same  manner,  although  the  quantity  of 
such  imports  is  probably  much  less  than  the  outgoing  merchandise. 


II.      RETURN   OF   AMERICAN   SECURITIES 

The  most  conspicuous  feature  of  our  "financial"  balance  since  the 
war  began  and  the  one  of  greatest  significance  for  the  future  has  been 
the  return  to  the  United  States  of  securities  in  American  industries 
formerly  held  by  foreigners,  coupled  with  a  great  increase  in  invest- 
ments by  Americans  in  foreign  securities — largely,  but  not  wholly, 
war  loans.  The  extent  to  which  investments  by  foreigners  in  Amer- 
ican industries  have  been  reduced  since  the  outbreak  of  hostilities 
cannot  be  stated  with  any  degree  of  accuracy.  Compilations  by 
President  Loree,  of  the  Delaware  and  Hudson  Company,  show  that 
nearly  60  per  cent  of  the  foreign  holdings  of  American  railroad  secu- 
rities were  returned  to  this  country  in  the  two  years  1915  to  1917. 
These  figures  embrace  the  securities  of  144  railroads — all  the  roads  in 
the  United  States  over  one  hundred  miles  in  length. 

On  January  31,  1915,  there  were  $2,704,402,364  (par  value)  of 
railroad  securities  held  abroad,  and  on  January  31,  1917,  $1,518,- 
590,878  had  been  returned  to  this  country,  leaving  on  the  latter 
date  $1,185,811,486  still  held  abroad. 

Securities  of  industrial  corporations  and  railroads  in  other  lands 
have  also  been  sold  in  this  country  to  the  extent  of  some  hundreds  of 
millions  of  dollars.  Large  investments  have  been  made  in  Canadian 
and  "South  American  concerns,  though  we  have  no  means  of  deter- 
mining the  extent  of  these  investments. 


264  ECONOMICS  OF  WAR 

III.      LOANS   BY  THE   UNITED   STATES 

Loans  floated  in  the  United  States  by  foreign  nations,  both 
belligerents  and  neutrals,  reveal  another  side  of  the  same  phase  of  our 
trade  account  with  the  world.  Between  August  i,  1914,  and  Decem- 
ber 31,  1916,  the  loans  raised  in  the  United  States  by  foreign  countries 
were  estimated  to  reach  $2,325,900,000,  of  which  $175,000,000  had 
been  repaid.  The  net  indebtedness  on  January  i,  1917,  was  therefore 
$2,150,900,000.  The  loans  may  be  classified  geographically  as 
follows : 

Europe $i ,893,400,000 

Canada 270,500,000 

Latin  America 1 57,000,000 

China 5,000,000 


Total  foreign  loans $2,325,900,000 

Less  amount  paid,  estimated 175,000,000 


Net  foreign  indebtedness $2,150,900,000 

The  loans  of  the  belligerent  countries  which  were  floated  in  the 
United  States  up  to  the  close  of  1916  are  divided  as  follows: 

Great  Britain $    908,400,000 

France 695,000,000 

Russia 160,000,000 

Germany 45,000,000* 

Canada 270,500,000 


Total $2,078,900,000! 

*  Estimated.  f  Nearly  $1,900,000,000  of  this  constituted  war  loans. 

Since  the  opening  of  the  year  in  which  the  United  States  entered 
the  war  there  have  been  issued  $250,000,000  United  Kingdom  of  Great 
Britain  and  Ireland  one-  and  two-year  5^  per  cent  notes,  of  which 
$100,000,000  matured  and  was  paid  February  i,  1918;  $100,000,000 
Government  of  the  French  Republic  5!  per  cent  secured  convertible 
notes;  $80,000,000  Dominion  of  Canada  notes;  and  approximately 
$315,000,000  additional,  including  British  government  ninety-day 
treasury  bills.  These  amounts,  minus  the  notes  matured  and  paid, 
aggregate  approximately  $645,000,000.  These  sums  do  not  of  course 
include  loans  made  by  the  United  States  government  to  her  Allies 
since  our  entrance  into  the  war. 


WAR-TIME  REGULATION  OF  TRADE  AND  INDUSTRY       265 


A  total  appropriation  of  $7,000,000,000  has  been  made,  $3,000,- 
000,000  by  the  act  of  April  24,  1917,  and  $4,000,000,000  by  the  act  of 
September  24,  1917.  Under  these  authorizations  credits  have  been 
established  in  favor  of  the  governments  of  Great  Britain,  France, 
Italy,  Russia,  Belgium,  and  Serbia.  These  loans,  up  to  January  17, 
1918,  are  given  in  Table  II.  On  the  basis  of  the  requests  being  made 

TABLE  II 


Country 

Loans  and  Credits 
Agreed  Upon 

Loans  Made 

Balances  under 
Established  Credits 

Great  Britain  

$2,045,000,000 

$1,985,000  ooo 

$31  1  O7O  2SO 

France  

1,285,000,000 

I  225,000  OOO 

50  ooo  ooo 

Italy  

500,000,000 

450  ooo  ooo 

50  ooo  ooo 

Russia  

325,000,000 

187  720  7<;o 

T37  27O  2?O 

Belgium  

77,400,000 

75,400,000 

2,OOO,OOO 

Serbia  

6,000,000 

4,200,000 

I,8OO,OOO 

Totals  

$4,238,400,000 

$3.Q27,  32Q,  7?O 

$311  O7O.2'CO 

on  the  Treasury,  it  is  estimated  that  credits  aggregating  approximately 
$500,000,000  per  month  will  be  required  to  meet  the  urgent  war  needs 
of  the  foreign  governments  receiving  advances  from  the  United 
States.  At  this  rate  approximately  the  entire  appropriation  author- 
ized by  Congress  will  be  accredited  to  our  Allies  by  the  close  of  the 
present  fiscal  year  (June  30,  1918). 

A  significant  feature  of  the  loans  floated  in  this  country  in  the  last 
three  and  a  half  years  has  been  the  fact  that  many  states  and  munici- 
palities which  formerly  went  to  London  to  sell  their  securities  have 
recently  been  financed  through  the  United  States.  About  $150,000,- 
ooo  of  the  Canadian  loans  went  to  provinces  and  municipalities,  and 
many  of  the  South  American  obligations  were  contracted  for  municipal 
improvements.  The  neutral  nations  of  Europe  have  also  sought 
accommodation  in  the  American  money  market.  Loans  have  been 
made  to  the  city  of  Dublin,  Ireland,  the  London  Water  Board,  and 
the  French  cities  of  Paris,  Bordeaux,  Lyons,  and  Marseilles. 

The  establishment  on  a  large  scale  of  credits  in  this  country  in 
behalf  of  foreign  nations  and  the  flotation  of  foreign  loans  will  probably 
continue  during  the  period  of  the  war.  During  the  continuance  of  this 
"export  of  capital"  the  great  surplus  of  exports  over  imports  is  likely 
to  be  a  feature  of  our  foreign  trade.  The  interest  on  this  investment 
which  is  already  large  and  growing  larger  is  on  the  credit  side  of  our 
account  with  the  world — making  for  the  supply  of  foreign  exchange 


266  ECONOMICS  OF  WAR 

and  thus  encouraging  imports.  The  United  States,  as  a  creditor 
country  with  great  investments  abroad,  will  be  in  receipt  of  an  income 
which  will  tend  to  show  itself  in  a  relatively  larger  import  trade  than 
has  been  the  case  for  three  or  four  decades.  In  other  words,  our 
highly  "favorable  balance  of  trade"  will  tend  to  be  changed  into  an 
"unfavorable  balance." 

IV.      OUR   SHIPPING  IMPROVES 

This  transformation  in  our  trade  balance  is  hastened  by  another 
factor  which  is  likely  to  be  very  potent  if  the  war  is  of  long  duration. 
This  factor  is  our  mercantile  marine  engaged  in  foreign  trade.  As  is 
well  known  only  a  small  fraction  of  our  foreign  commerce  in  recent 
times  has  been  carried  in  vessels  flying  the  American  flag.  Ocean 
freight  rates  have  thus  been  paid  foreign  vessel  owners  for  services 
performed  in  the  carriage  of  our  exports  and  imports — these  services 
figuring  on  the  debit  side  of  our  account  with  the  world  and  being 
paid  for,  in  part  at  least,  by  a  surplus  of  exports  over  imports. 

Since  the  outbreak  of  war  in  Europe  the  proportion  of  our  foreign 
commerce  carried  in  American  vessels  has  greatly  increased.  Between 
June,  1914,  and  June,  1916,  the  gross  tonnage  of  American  vessels 
engaged  in  foreign  trade  increased  from  1,076,152  to  2,191,715 — or 
more  than  doubled.  The  percentage  of  our  exports  carried  by  this 
tonnage  increased  during  the  same  period  from  8 .3  to  13  .o,  and  of  our 
imports  from  n  .4  to  22  .5.  Since  the  United  States  entered  the  war 
a  considerable  part  of  our  enrolled  tonnage  has  been  registered  for  the 
foreign  service.  The  destruction  of  ocean  vessels  by  submarine 
activity  and  the  construction  of  new  shipping  have  combined  to 
increase  our  proportion  of  the  total  carrying  capacity  of  the  ocean 
merchant  marine  of  the  world.  The  bulk  of  the  tonnage  destroyed 
has  been  British,  French,  Norwegian,  and  Dutch.  The  new  con- 
struction of  vessels  in  the  United  States  and  in  Japan  has  been  out  of 
proportion  to  that  of  any  other  country  except  Great  Britain.  In  the 
case  of  Great  Britain  the  new  tonnage  constructed  has  been  more  than 
offset  by  tremendous  losses.  The  United  States  thus  bids  fair  at 
the  end  of  the  war  to  have  on  her  hands  the  ships  necessary  to  carry 
on  a  large  part  of  her  foreign  commerce. 

V.      A  FORECAST 

With  the  huge  loans  made  to  foreign  governments  and  industries 
coupled  with  a  decline  in  the  holdings  of  foreigners  in  American 


WAR-TIME  REGULATION  OF  TRADE  AND  INDUSTRY       267 

securities  and  the  increasing  importance  of  our  mercantile  marine  in 
the  commerce  of  the  world,  our  "invisible  exports"  will  figure  to  a 
greater  extent  in  our  commercial  relations  with  other  nations  than 
heretofore.  Like  the  exports  of  merchandise  and  of  gold,  they  make 
for  the  supply  of  foreign  exchange  and  will  tend  to  stimulate  the 
importation  of  merchandise.  As  a  creditor  country,  the  debt  due  us 
and  the  interest  on  that  debt  will  be  paid  by  a  relatively  greater 
increase  of  imports  than  of  exports.  Our  present  highly  "favorable 
balance"  of  trade  will  tend  to  be  changed  into  an  "unfavorable 
balance."  Our  "invisible  exports"  will  probably  exceed  our  "invis- 
ible imports"  with  the  balance  made  up  by  a  corresponding  excess  of 
"visible  imports"  over  "visible  exports." 


We  are  this  month  in  the  thick  of  important  developments  in 
national  and  international  finance.  The  United  States  government 
has  taken  control  of  exchange,  and  its  control  is  so  complete  that  it 
now  knows  every  transfer  of  money  or  credits  of  any  kind  from  this 
country  to  any  other,  or  from  foreign  countries  to  America,  and  all 
exchanges  of  credits  belonging  to  Americans  from  one  foreign  country 
to  another.  Our  government  has  not  only  made  it  a  summary  offense 
for  an  American  business  concern  of  any  kind  to  take  part  in  the 
transfer  of  merchandise,  money,  securities,  bank  credits,  or  rights  of 
any  kind  to  money  or  property  anywhere  in  the  world  (except  in 
business  wholly  within  the  United  States)  without  its  cognizance  or 
direct  permission,  and  it  has  built  Up  a  machinery  of  control  which 
makes  it  well-nigh  impossible  for  anybody  to  do  so  without  coming 
under  the  penalties  of  the  Enemy-Trading  Act. 

This  control  is  bound  to  be  of  effect  in  interfering  with  Germany's 
ability  to  raise  buying  credits  in  the  neutral  countries  contiguous  to 
her  through  any  kind  of  financial  transactions  in  friendly  quarters 
over  the  world  where  Germans  have  property,  securities,  or  commercial 
accounts  in  banks.  Germany's  credit  had  been  rising  in  the  markets 
of  these  neutrals,  and  the  rise  was  not  all  accounted  for  by  publicly 
known  financial  arrangements  with  contiguous  neutrals  by  which  she 
obtained  loans  in  compensation  for  permitting  German  coal,  iron,  and 
other  products  to  go  to  the  neutrals.  There  has  evidently  been  good 

1  Adapted  from  The  Americas  (February,  1918),  p.  14. 


268  ECONOMICS  OF  WAR 

reason  for  suspecting  that  Germany  had  been  drawing  upon  German 
credits  elsewhere  in  the  world,  and  some  vagaries  of  international 
exchange  within  the  past  few  months  could  be  accounted  for  in  this 
way.  The  rigid  control  of  gold  and  silver  exports  by  our  government 
was  suddenly  assumed  for  the  purpose  (among  other  reasons  and  pur- 
poses) of  preventing  Germany's  subtle  realization  on  German  property 
and  credits  in  America,  and  now  the  government,  no  doubt  in  co- 
operation with  other  financially  powerful  Allies,  has  adopted  a  drastic 
measure  that  will  greatly  impede  Germany's  ability  to  realize  on 
German  property  or  credits  even  in  neutral  countries  anywhere  in  the 
world,  in  order  to  transfer  these  into  buying  credits  which  she  would 
use  now  in  Scandinavia,  Holland,  or  Switzerland,  and  perhaps  be 
gathering  at  strategic  points  in  the  world  for  use  of  her  industries  at 
the  moment  of  peace. 

This  is  a  development  in  the  way  of  a  financial  offensive  against 
Germany,  supplementing  the  other  economic  offensives  of  the  Allies. 

4.    PROBLEMS  IN  THE  CONTROL  OF  FOREIGN 
EXCHANGE1 

The  development  of  the  gold-embargo  policy  and  the  strengthen- 
ing of  public  control  of  foreign  exchange  is  bringing  about  in  the  trade 
of  the  United  States  the  development  of  new  conditions  which  are 
necessarily  leading  to  the  application  of  further  methods  of  commercial 
regulation.  Up  to  date  under  the  gold  embargo  there  have  been 
granted  licenses  for  the  importation  of  about  $60,000,000  gold,  $i6c-, 
000,000  silver,  and  $30,000,000  currency  in  round  numbers,  or  a  total 
of  approximately  $250,000,000.  The  value  of  the  dollar  in  foreign 
markets  has  continued  to  decline  because  of  the  difficulty  of  obtaining 
means  of  remittance  for  the  purpose  of  settling  balances. 

Peculiar  conditions  are  recognized  as  surrounding  the  gold  situa- 
tion, due  to  the  fact  that  as  a  result  of  the  war  and  limitations  upon 
trade  it  is  not  possible,  as  in  times  of  peace,  to  offset  foreign  balances 
against  one  another.  The  situation  is  leading  to  the  negotiation  of 
special  agreements  with  various  foreign  countries  for  the  regulation 
of  exchange  relationships,  many  of  these  being  based  upon  under- 
takings to  export  net  balances  of  gold  within  a  specified  period  after 
the  close  of  the  war.  Congress  has  made  provision  by  law  for  the 
sale  of  bonds  abroad,  payable  in  terms  of  foreign  currency,  and  this 

1  Adapted  from  Washington  Notes,  Journal  of  Political  Economy,  XXVI 
(July,  1918),  pp.  749-51- 


WAR-TIME  REGULATION  OF  TRADE  AND  INDUSTRY       269 

may  render  it  possible  in  some  instances  to  provide  a  means  of  liqui- 
dating balances  due  to  those  countries. 

In  some  cases  conditions  have  become  so  acute  as  apparently  to 
require  direct  regulation  of  payments.  In  the  case  of  Italy,  for 
example,  it  has  been  deemed  best  to  effect  an  adjustment  whereby 
the  practical  supervision  of  each  transaction  is  placed  in  the  hands 
of  a  committee  representing  the  Italian  and  American  governments. 
Experience  in  connection  with  our  foreign  exchange  relations  is  very 
similar  to  that  already  had  by  foreign  countries  which  have  attempted 
the  same  method  of  restricting  payment.  The  interesting  question 
in  the  whole  matter  is  whether  it  will  be  possible  to  bring  about  a 
general  control  of  financial  relations  with  foreign  countries  unless 
trade  relations  with  them  are  first  subjected  to  such  control.  Thus 
far  the  regulation  of  trade  relationships  has  been  in  the  hands  of  the 
War  Trade  Board,  but  that  Board  has  been  governed  very  largely  by 
military  considerations  and  has  given  comparatively  little  attention 
to  the  commercial  side  of  our  foreign  business. 

Within  the  past  sixty  days  the  United  States  Shipping  Board  has 
come  forward  as  a  part  of  the  system  of  regulation  by  applying 
methods  for  the  control  of  tonnage.  Under  this  plan  those  who  wish 
to  import  commodities  into  the  United  States  must  obtain  tonnage 
through  assignment  by  the  government.  They  are  thus  not  only 
obliged  to  secure  importation  licenses  but  must  also  secure  in  practice 
action  which  will  furnish  them  with  the  means  of  moving  their  goods. 
As  yet  it  is  uncertain  how  far  this  system  will  be  worked  out  upon  a 
strictly  economic  basis,  that  is,  with  a  view  to  adjusting  trade  balances 
and  thus  relieving  the  disturbances  to  exchange  and  other  financial 
relationships  with  foreign  countries.  As  the  war  continues  for  a 
longer  and  longer  period  the  necessity  of  a  general  limitation  upon 
foreign  business  will  grow  more  and  more  pressing,  and  the  adoption 
of  temporary  measures  designed  to  relieve  difficulties  in  the  exchange 
situation  will  become  necessarily  less  and  less  effective.  This  is  even 
now  being  made  evident  by  the  difficulties  already  referred  to  in 
connection  with  the  tendency  of  the  dollar  to  depreciate  in  buying 
power  abroad  as  compared  with  currency  units  of  the  countries  with 
which  we  are  doing  business. 


XXV.     Shifting  the  World's  Gold  Supply 
i.     GOLD  HOLDINGS  OF  THE  NATIONS,  1914-1917' 


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merce. 


WAR-TIME  REGULATION  OF  TRADE  AND  INDUSTRY       271 

2.    EFFECTS  OF  THE  SHIFTING  OF  THE  WORLD'S 
GOLD  SUPPLY1 

What  have  been  the  effects  of  these  gold  movements — first,  upon 
the  belligerents,  and,  second,  upon  the  neutrals  ? 

The  governments  of  all  belligerent  countries  have  been  alive  to 
the  fact  that  the  greatest  amount  of  service  can  be  had  from  their 
gold  by  postponing  parting  with  it  as  long  as  possible.  Therefore 
they  have  permitted  exchange  on  their  countries  to  decline  consider- 
ably before  shipping  gold. 

A  decline  in  the  value  of  a  currency  always  has  the  effect  of  raising 
the  prices  of  imported  commodities,  as  it  requires  more  of  the  depre- 
ciated money  to  pay  the  foreigner  for  the  same  quantity  of  goods  than 
it  did  before.  A  high  rate  of  foreign  exchange  (i.e.,  a  low  rate  of 
exchange  on  the  subject  country)  is  an  infallible  sign  of  a  depreciation 
in  the  value  of  a  currency. 

Of  course  the  main  factors  in  raising  price  levels  in  the  belligerent 
countries  are  the  increased  demand  for  merchandise  and  the  reduced 
production  of  commodities,  but  this  contributory  defect  of  declining 
exchange  is  not  inconsiderable.  The  extent  of  this  upward  movement 
of  prices  can  be  seen  from  the  index  number  of  The  London  Economist, 
which  advanced  from  2,565  in  July,  1914,  to  4,908  in  December,  1916 
— an  increase  of  almost  100  per  cent. 

The  withdrawal  of  gold  from  circulation  for  export  to  the  neutral 
countries  created  a  dearth  of  circulating  medium,  which  has  been 
replaced  by  the  additional  issues  of  bank  notes  by  the  government 
banks.  The  movement  did  not  stop  there,  however;  the  temptation 
to  "make  money"  by  the  printing-press  process  has  been  too  great 
in  all  countries,  and  we  find  everywhere  a  tendency  to  issue  currency, 
not  only  sufficient  to  replace  the  gold,  but  far  in  excess  of  that  amount. 

The  effects  upon  neutral  or  supply  countries  of  the  influx  of  gold 
have  been,  first,  the  direct  impulse  to  finance  and  trade  of  the  increase 
in  circulating  medium;  second,  the  ultimate  expansion  of  credit  based 
upon  the  gold  imported;  third,  the  stimulus  to  trade  from  the  afore- 
mentioned factors;  fourth,  higher  price  levels  of  commodities  as  a 
result  of  all  three  foregoing  factors. 

The  secondary  effect  is  the  expansion  of  credit  upon  the  basis  of 
the  gold  thus  imported.  An  excellent  illustration  of  this  is  found  in 
the  last  report  of  the  Comptroller  of  the  Currency. 

1  By  John  E.  Rovensky  (see  p.  270).     From  a  pamphlet  (ibid.). 


272  ECONOMICS  OF  WAR 

On  June  30,  1914,  just  before  the  outbreak  of  the  war,  the  total 
amount  of  cash  held  by  all  the  banks  of  the  United  States  (national, 
state,  and  private)  was  estimated  at  about  $1,639,000,000.  Of  this 
amount  about  $913,000,000  was  in  the  form  of  gold  or  its  representative 
gold  certificates.  Upon  this  basis  there  rested  a  structure  of  credit 
amounting  to  $21,351,000,000.  In  other  words,  the  gold  basis  of  the 
country's  deposit  credits  amount  to  4 . 27  per  cent.  On  June  30, 1916, 
the  total  amount  of  cash  held  by  the  same  banks  (including  now  the 
Federal  Reserve  banks)  was  $1,911,000,000,  of  which  it  is  estimated 
that  about  $1,140,000,000  was  in  gold.  In  addition  the  Federal 
Reserve  agents  held  quite  an  amount  of  gold  as  coverture  for  Federal 
Reserve  notes  issued,  but  this  gold  cannot  be  taken  into  consideration 
in  this  connection  as  it  is  not  at  present  available  as  a  basis  of  credit 
expansion. 

Upon  this  gold  basis  of  $1,140,000,000  there  rested  a  credit  struc- 
ture of  $28,250,000,000.  The  gold  basis  amounted  to  4.02  per  cent 
of  the  deposits.  This  is  a  clear  illustration  of  how  readily  the  gold 
taken  into  our  system  is  assimilated  and  how  promptly  credit  expands 
upon  its  basis. 

The  resultant  effect  upon  our  economic  structure  of  such  an  expan- 
sion of  credit  and  the  stimulation  of  trade  can  well  be  imagined,  and 
the  next  result — higher  prices  of  commodities — is  also  apparent.  Of 
course  there  are  many  other  factors  that  tend  to  drive  price  levels 
upward,  and  primarily  prices  have  risen  because  of  the  greatly 
increased  demand  upon  us  for  materials  by  the  belligerent  countries. 

That  this  situation  contains  many  elements  of  danger  is  clearly 
apparent.  The  greatest  dangers  are: 

First. — Overexpansion  of  credit  and  resultant  stimulated  trade. 

Second. — General  disarrangement  of  economic  structure;  high 
prices,  abnormal  wages;  change  in  standards  of  living,  etc. 

Third. — The  inevitable  reversal  of  the  golden  tide. 

XXVI.    British  Control  of  Trade  and  Industry 
i.    THE  REGULATION  OF  TRADE  IN  GREAT  BRITAIN1 

When  the  war  began  no  country  was  so  ill  prepared  as  England 
for  controlling  the  trade  and  business  ancillary  to  war,  for  protecting 
the  public  against  monopolists.  And  yet  no  country  has  done  so  well 

1  By  Robert  Donald.  Adapted  from  "Trade  Control  in  War,"  an  interview 
given  to  the  New  York  Times,  1916. 

ED.  NOTE. — Mr.  Donald  is  the  editor  of  the  London  Daily  Chronicle. 


WAR-TIME  REGULATION  OF  TRADE  AND  INDUSTRY       273 

the  big  things  which  are  of  vital  importance  to  the  armies  and  the 
people.  The  strong  hand  of  the  state  has  intervened,  untrammelled 
for  the  time  being  by  legislative  checks,  and  has  asserted  its  power  of 
possession,  control,  direction,  and  regulation  in  every  sphere  of  trade 
where  public  interest  and  the  welfare  of  the  Army  had  to  be  safe- 
guarded. 

When  the  war  took  the  world — except  the  Teutonic  portion  of  it — 
by  surprise  on  the  first  of  August,  1914,  Europe  commercially  was  at 
once  plunged  into  anarchy.  The  first  shock  demoralised  all  the 
exchanges  and  knocked  the  bottom  out  of  credit;  cheques  were  not 
cashed,  the  sacred  Bank  of  England  " fiver"  was  rejected  as  a  worth- 
less scrap  of  paper.  The  possession  of  gold  and  goods  was  the  only 
thing  that  counted.  Goods  were  being  cornered  and  prices  were 
mounting  unrestricted  to  prohibitive  levels.  England  was  in  danger 
of  a  food  famine.  Promptly  the  government  set  up  a  Food  Control 
Committee  to  regulate  prices  and  prevent  cornering.  It  was  only  a 
temporary  measure  to  meet  an  unprecedented  emergency.  Things 
settled  down  in  a  few  weeks,  except  in  one  or  two  directions. 

The  first  discovery  made,  which  no  control  could  help,  was  that 
the  country  was  short  of  sugar.  England  imported  39,385,190  cwts. 
of  sugar  per  annum,  and  two-thirds  of  the  supply  came  from  Germany 
and  Hungary.  The  outbreak  of  the  war  caught  the  country  between 
two  seasons,  when  supplies  from  Cuba  and  elsewhere  were  stopping 
and  when  the  German  imports  had  not  begun.  The  stock  in  the 
country  was  very  short.  Mr.  McKenna,  who  was  then  Home  Secre- 
tary and  chairman  of  the  Food  Supply  Committee,  promptly  took 
action.  He  was  given  a  free  hand  by  the  government.  He  called 
together  all  the  sugar  importers  and  refiners  and  selected  two  of  them 
to  buy  for  the  British  government.  They  bought  sugar — both  raw 
and  refined — all  over  the  world.  England  invaded  the  Java  market 
for  the  first  time.  Supplies  were  obtained  from  Italy,  America,  the 
Argentine  and  other  South  American  countries,  from  Spain,  and  from 
every  country  which  had  sugar  to  sell.  The  total  value  of  these  first 
purchases  was  over  $86,400,000 — the  biggest  deal  in  sugar  in  the 
history  of  the  trade.  It  was  not  very  long  before  the  holders  of  sugar 
discovered  that  they  were  selling  to  the  British  government  and  began 
to  raise  the  prices.  Purchasing  then  stopped,  but  the  official  buyers 
swooped  down  on  the  markets  later  on,  and  since  then  there  has 
been  no  difficulty  about  the  supply  of  sugar  in  England.  Con- 
tracts for  long  periods  were  made.  The  only  difficulty  has  been, 


274  ECONOMICS  OF  WAR 

not  the  shortage  of  sugar,  but  the  shortage  of  freight  to  carry  it  to 
England. 

The  purchasing  scheme  was  only  preliminary.  The  government 
set  up  a  commission  to  control  the  whole  sugar  trade.  The  British 
government  is  the  only  sugar  importer.  It  sells  at  fixed  prices  to 
refiners,  fixes  the  price  for  wholesale  houses  and  for  retailers.  Every 
intermediary  is  allowed  a  fair  profit,  and  the  consumer  is  better  pro- 
tected than  ever  he  was.  When  the  war  came,  the  tax  on  sugar  was 
about  45  cents  per  hundred  weight.  It  was  raised  for  war  purposes 
to  $2  . 24.  In  normal  times  the  retailers  would  have  added  two  cents 
per  pound  to  cover  the  increase,  but  the  government  had  made  so 
many  favorable  purchases  that  it  only  increased  the  price  to  the 
consumers  by  one  cent  per  pound,  and  had  left,  not  only  the  duty  for 
the  revenue,  but  also  a  profit  on  the  transaction.  The  duty  on  sugar 
is  now  $3  .36  per  hundred  weight,  and  yet  it  is  cheaper  in  England  than 
in  any  belligerent  country  and  in  most  neutral  countries.  The  public 
has  been  protected  and  the  Treasury  enriched.  This  year's  budget 
includes,  as  the  revenue  for  the  British  Exchequer  on  account  of 
sugar,  the  sum  of  $33,600,000.  The  British  government  now  supplies 
the  French  government  with  sugar  at  cost  price. 

The  problem  of  beef  supply  had  to  be  tackled  at  the  same  time  as 
that  of  sugar.  England  depends  largely  at  all  times  on  imported 
frozen  or  chilled  meat.  When  the  war  crisis  came  the  public  and  the 
Army  had  to  be  protected  from  the  beef  trusts.  Early  in  the  war  it 
was  evident  that  the  state  had  to  act.  Mr.  Runciman,  the  president 
of  the  Board  of  Trade,  the  department  which  looks  after  commercial 
and  mercantile  marine  interests,  intervened.  His  first  master-stroke 
was  to  seize  all  steamers  with  refrigerating  space  capable  of  carrying 
chilled  meat.  Chilled  meat  for  England  comes  chiefly  from  the 
Argentine,  Uruguay,  and  from  Australia  and  New  Zealand.  In  1913 
we  imported  15,397,554  hundred  weight  of  chilled  and  frozen  meat. 
The  government  having  gotten  possession  of  the  ships,  the  two  parties 
were  then  on  a  level  footing  for  bargaining.  The  meat  corporations 
had  the  beef  but  could  not  sell  it  without  ships.  The  government  had 
the  ships  and  wanted  the  meat,  so  that  it  did  not  take  long  to  come  to 
terms.  The  business  was  put  in  the  hands  of  a  committee  of  ship- 
owners, and  the  whole  transit  problem  was  solved  without  delay.  As 
a  precaution  against  any  shortage  of  chilled  meat  from  the  usual 
sources  the  government  entered  into  contracts  with  a  great  American 
meat  firm.  As  a  further  protection  freezing  works  were  acquired  in 
South  America  for  the  period  of  the  war.  The  enormous  quantities 


WAR-TIME  REGULATION  OF  TRADE  AND  INDUSTRY       275 

of  meat  imported  from  the  United  States  for  the  armies  are  mainly  in 
the  form  of  bully-beef  and  other  canned  meat.  The  British  govern- 
ment went  into  the  beef  business  in  order  to  supply  the  troops  at  home 
and  overseas  with  chilled  meat.  It  has  done  so  at  an  average  cost 
of  12  cents  per  pound.  It  also  supplies  all  meat  of  this  kind  required 
by  the  French  Army,  the  Italian  Army,  the  Belgians,  and  the  Serbians. 
The  amount  of  meat  required  several  months  ago  for  the  British  and 
French  armies  was  over  50,000  tons  per  month;  for  the  Italian  Army 
about  10,000  tons  per  month.  These  quantities  have  increased 
proportionately  with  the  additions  to  the  forces  during  the  last  six 
months.  Having  created  a  state  monopoly  in  the  importation  and 
control  of  chilled  meat,  the  government  had  to  make  provision  for 
domestic  supplies  outside  the  Army.  The  Board  of  Trade  arranged 
to  sell  to  British  firms  the  surplus  meat  at  market  prices.  They 
obtained  a  small  commission,  lower  than  it  hitherto  received  from 
traders.  Sales  to  speculators  were  prohibited. 

Wheat  was  quite  as  important  as  sugar  and  beef,  although  there 
was  less  risk  of  a  world-corner.  Wheat  is  purchased  for  government 
account  on  somewhat  similar  lines  as  beef.  A  small  committee,  at 
the  head  of  whom  is  a  civil  servant  and  a  corn  expert,  manage  the 
whole  business.  One  of  the  largest  importing  houses  was  com- 
missioned to  do  all  the  purchasing,  while  the  other  houses  held  off, 
and  it  was  four  months  before  the  corn  trade,  on  the  selling  side,  dis- 
covered the  purchases  were  made  for  the  state.  Naturally  the 
commission  which  the  state  pays  on  such  transactions  is  nominal. 
The  British  government  organisation  buys  and  ships  wheat,  oats, 
fodder,  etc.,  for  Italy.  The  French  government  buys  their  civil  ravi- 
taillement  wheat  through  the  Hudson  Bay  Company.  Large  purchases 
have  been  made  in  Canada  on  behalf  of  the  Italian  government. 

There  are  other  examples  of  government  purchase  and  control  of 
food.  Take  fish,  for  instance.  The  fishing  trade  in  the  North  Sea 
has  been  paralysed  to  a  very  large  extent  by  the  war,  especially  by 
the  danger  from  submarines  and  mines.  The  government  has 
maintained  a  service  of  fishing  boats  and  has  just  completed  a  big 
deal  with  Norway,  by  acquiring  the  whole  fish  harvest  of  the  year. 
Last  year  Germany  bought  the  Norwegian  fish  supply.  This  year, 
before  the  German  agents  had  time  to  turn  round,  the  British  govern- 
ment had  bought  the  lot  and  deprived  Germany  of  the  sole  outside 
source  of  supply. 

The  system  of  government  control  has  been  successful  in  other 
directions.  There  is  the  case  of  coal.  Coal  is  wanted  for  the  allied 


276  ECONOMICS  OF  WAR 

fleets,  for  munition  works,  and  for  transportation  by  land  and  sea. 
Clearly  the  production  and  distribution  of  coal  had  to  be  made  a 
public-utility  service.  The  government  passed  a  Price  of  Coal 
Limitation  Act,  which  fixed  a  fair  profit  for  the  coalowners  according 
to  the  prices  in  the  year  before  the  war.  Having  got  the  coalowners 
under  control  the  act  then  regulated  the  prices  which  the  wholesale 
dealers  could  charge,  and  also  the  retailers,  throughout  the  United 
Kingdom.  The  result  has  been — no  shortage  of  coal  and  no  excessive 
prices.  The  regulation  of  coal  has  been  a  stupendous  task,  as  rrore 
than  half  a  million  men  engaged  in  coal  mining  have  enlisted,  and  the 
first  duty  of  the  government  was  to  see  that  not  only  the  British  Navy 
but  the  French  and  Italian  navies  should  have  ample  supplies.  Next 
came  the  mercantile  marine,  transport,  munition  works,  etc.  The 
British  government  supplies  not  only  its  own  needs  but  also  those  of 
France  and  Italy.  After  much  trouble  the  problem  of  freight  has 
been  regulated,  as  far  as  England  and  her  Allies  can  control  their  own 
mercantile  marine,  but  much  of  the  trade  is  done  by  neutrals.  The 
general  export  of  coal  was  prohibited,  except  to  the  allied  countries 
and  British  possessions.  A  network  of  coal-  and  coke-supply  com- 
mittees has  been  set  up  throughout  the  country  under  the  supervision 
of  a  central  authority  working  under  the  Board  of  Trade.  Beyond 
supplying  the  war  and  governmental  needs,  including  the  railroads  of 
the  French  and  Italian  governments,  the  British  Board  of  Trade 
regulates  the  freights  for  the  supply  of  coal  for  commercial  and  business 
purposes  in  France  and  Italy,  so  far  as  it  has  the  tonnage  available. 
Mr.  Runciman  declined  to  make  this  arrangement  until  France  intro- 
duced the  same  system  of  regulating  prices,  otherwise  the  whole  of  the 
benefit  would  have  got  into  the  pockets  of  the  French  coal  merchants. 
These  are  only  some  of  the  great  business  undertakings  which 
the  war  has  forced  upon  the  British  government.  Except  in  the  case 
of  sugar,  all  have  been  carried  out  by  the  Board  of  Trade. 

2.     THE  DEVELOPMENT  OF  THE  BRITISH  MINISTRY 
OF  MUNITIONS1 

On  the  i4th  of  May,  1915,  the  Times  military  correspondent  on 
the  Western  Front  wrote  that  the  absence  of  an  unlimited  supply  of 

1  By  Jules  Destree.  Adapted  from  Britain  in  Arms,  pp.  189-98.  Copyright 
by  John  Lane  Co.,  New  York,  1917. 

ED.  NOTE. — Jules  Destre'e  is  a  noted  French  traveler  and  journalist,  an 
interpreter  of  the  entente  nations  to  each  other.  The  preface  to  Britain  in  Arms 
is  contributed  by  Georges  Clemenceau. 


WAR-TIME  REGULATION  OF  TRADE  AND  INDUSTRY       277 

high  explosives  had  proved  a  fatal  obstacle  to  success.  In  saying  this 
he  gave  free  and  open  expression  to  criticisms  that  had  been  rife 
in  the  lobby  of  the  House  of  Commons  and  in  private  circles  for  a  long 
time  past.  The  failure  of  the  British  Army  to  reap  the  full  fruits  of 
its  splendid  achievements  at  Neuve  Chapelle,  and  the  ebb  and  flow 
in  the  defence  of  Hill  60  on  the  1 7th  of  April  were  cases  in  point.  An 
energetic  campaign  was  organised  in  the  newspapers  after  the  publica- 
tion of  the  Times  letter.  Questions  were  put  in  the  Commons. 
Popular  feeling  was  deeply  stirred. 

This  feeling  was  unquestionably  justified.  The  War  Office  had 
displayed  a  lack  of  foresight  in  its  arrangements  for  the  production 
of  munitions,  a  shortcoming  which  it  shared,  however,  with  the  other 
partners  in  the  Alliance ;  of  that  the  Russian  reverses  afforded  decisive 
proof. 

The  daily  output  of  munitions  did  not  equal  the  necessary  con- 
sumption. How  immense  this  consumption  is  it  would  be  difficult 
to  realise,  did  we  not  know  that  the  number  of  shells  consumed  at 
Neuve  Chapelle  alone  was  greater  than  the  total  employed  in  the 
whole  South  African  campaign. 

Moreover  the  English  factories  had  manufactured  a  great  quan- 
tity of  shrapnel,  but  only  a  comparatively  restricted  supply  of  high 
explosives.  This  was  diametrically  opposed  to  the  requirements  of 
the  situation.  In  fact,  the  nature  of  the  terrain  and  the  strength  of 
the  enemy's  defensive  works  were  such  that,  before  an  infantry  attack 
could  be  launched,  even  under  protection  of  shrapnel  fire,  it  was 
necessary  that  the  hostile  positions  should  be  subjected  to  such  a 
deluge  of  high  explosives  as  to  render  the  most  thoroughly  organised 
defences  untenable. 

These  defects  having  been  made  manifest  by  bitter  experience, 
measures  were  taken  to  remedy  them. 

The  25th  of  May,  1915,  witnessed  the  formation  of  the  Coalition 
government  in  England.  Mr.  Lloyd  George  became  head  of  a  newly 
created  department — the  Ministry  of  Munitions.  The  new  Minister 
lost  no  time  in  setting  to  work.  He  remedied  the  most  urgent  defects 
and,  a  month  later,  laid  on  the  table  of  the  House  the  Munitions  Bill 
that  was  to  solve  the  great  problem  once  for  all. 

The  problem  may  be  stated  as  follows: 

Experience  had  shown  that  of  the  two  opposing  forces  the  advan- 
tage would  rest  with  the  one  that  could  outdo  the  other  in  the  expen- 
diture of  munitions.  From  that  time  onwards  the  question  ceased 


278  ECONOMICS  OF  WAR 

to  be  a  purely  military  one;  it  became  a  labour  question.  It  was  in 
the  workshops,  the  factories,  the  arsenals,  that  victory  was  to  be 
wrought  out. 

This  had  been  perfectly  well  understood  by  the  Germans,  and  in 
this  as  in  so  many  other  respects  they  had  the  advantage  over  the 
Allies  of  preparation  and  foresight.  These  preparations  were  of  two 
kinds.  They  consisted,  in  the  first  place,  in  the  accumulation  of 
reserves  of  munitions  and  of  the  raw  material  necessary  for  their 
manufacture,  and,  secondly,  in  the  measures  ensuring  the  immediate 
and  effective  mobilisation  of  the  national  industries  for  the  sole  and 
exclusive  purpose  of  carrying  on  the  war.  The  Central  Empires  were 
able  to  turn  out  250,000  shells  a  day,  or  nearly  8,000,000  a  month. 
The  British  rate  of  production  was  2,500  high  explosive  shells  and 
13,000  shrapnel  shells  a  day.  Thus  the  problem  before  the  Allies 
was  first  of  all  to  equal  and  then  to  surpass  the  formidable  productive 
capabilities  of  their  adversaries.  The  sooner  they  did  so,  the  sooner 
victory  would  be  theirs. 

England's  reserves  in  the  matter  of  labour  and  machinery  were 
immense.  But  they  were  all  unsystematised.  The  problem  was  to 
organise  these  resources,  and  to  organise  them  without  delay. 

Mr.  Lloyd  George's  first  step  was  to  select  his  staff.  A  large 
number  of  business  men,  technical  engineers,  and  others  freely  placed 
their  services  at  his  disposal,  most  of  them  without  demanding  any 
remuneration  from  the  state.  Each  one  of  them  was  put  in  charge 
of  a  particular  branch,  e.g.,  metals,  explosives,  machinery,  labour, 
chemical  research,  and  so  on. 

But  Mr.  Lloyd  George's  principal  aim  being  to  obtain  quick 
returns,  he  regarded  it  as  an  urgent  necessity  to  decentralise  the  work 
as  much  as  possible.  The  United  Kingdom  was  split  up  into  a  certain 
number  of  districts;  special  committees  were  formed  for  the  purpose 
of  organising  the  work  in  each  district.  They  consisted  of  local 
business  men  who  were  familiar  with  the  resources  and  the  labour 
conditions  of  the  place;  of  engineers  who,  in  order  to  fit  them  for 
their  duties,  had  undergone  a  brief  period  of  service  in  the  government 
arsenals  or  in  one  of  the  following  works:  Elswick,  Vickers-Maxim, 
or  Beardmore;  and  of  a  technical  engineer  and  a  secretary  in  touch 
with  the  Ministry  of  Munitions. 

One  of  the  great  difficulties  was  the  matter  of  raw  material.  Some 
England  possessed  in  abundance,  some  could  only  be  obtained  with 
difficulty.  The  department  had  also  to  see  to  it  that  no  attempt  was 


WAR-TIME  REGULATION  OF  TRADE  AND  INDUSTRY       279 

made  by  unscrupulous  suppliers  to  make  a  corner  in  their  goods.  The 
doings  of  the  metal  markets  were  carefully  looked  into,  with  imme- 
diately beneficial  results. 

Having  provided  the  raw  material,  the  next  thing  was  to  get  to 
work  on  it.  Where  was  the  plant  to  come  from  ? 

A  vast  registration  scheme  was  set  on  foot,  and  in  a  short  time  the 
government  had  an  accurate  idea  of  the  machinery  at  its  disposal. 
As  soon  as  the  process  of  classification  was  completed  it  was  of  course 
evident  that  what  was  chiefly  lacking  were  certain  machines  required 
in  the  manufacture  of  large  shells.  The  government  thereupon  took 
all  the  big  machine  works  under  its  direct  control  for  the  duration 
of  the  war.  Henceforth  these  works  were  government  works,  and  on 
the  28th  of  July,  1915,  Mr.  Lloyd  George  remarked  with  satisfaction 
that  there  had  not  been  a  word  of  protest  on  the  part  of  any  machine- 
tool  manufacturers,  although  the  change  involved  a  considerable 
diminution  in  their  profits.  Owing  to  this  measure,  supplemented 
by  the  creation  of  a  committee  of  machine-tool  manufacturers  of  the 
United  Kingdom,  the  output  of  material  required  for  the  manufacture 
of  munitions  was  greatly  increased,  and  will  increase  still  further  as 
time  goes  on. 

The  government  was  thus  able  to  reorganise  the  production  works 
themselves.  These  were  of  two  kinds.  First,  there  were  the  muni- 
tion works  properly  so  called,  where  it  was  necessary  to  extend  the 
plant  or  increase  the  rate  of  production.  Then  there  were  factories 
which  had  to  be  altered  so  as  to  adapt  them  to  the  new  kind  of  work. 
Finally,  the  government  decided  to  create  sixteen  large  works — a 
number  subsequently  increased  to  twenty-six — the  equipment  of 
which  is  being  carried  out  with  the  utmost  dispatch. 

The  next  thing  was  to  organise  the  labour  and  recruit  fresh  hands. 
There  was  a  choice  of  two  methods,  the  compulsory  and  the  voluntary. 
After  going  into  the  matter  with  the  Trades  Union  leaders  it  was  the 
latter  method  that  was  decided  upon.  It  was  more  in  accordance 
with  English  traditions  and  sentiment.1  A  vast  recruiting  campaign 
was  started,  the  headquarters  being  the  town  hall,  in  one  hundred  and 
eighty  different  centres.  It  lasted  a  week  and  was  an  immense 
success.  Mr.  Lloyd  George  stated,  on  the  23d  of  July,  1915,  that  the 
government  had  got  together  100,000  workmen,  most  of  whom  were 
experts  in  machinery  and  shipbuilding.  True  it  was  not  possible  to 
employ  them  all,  some  already  doing  government  work,  others  being 

1  Cf.  Section  XIX. 


280  ECONOMICS  OF  WAR 

indispensable  to  the  civil  life  of  the  country.  But  when  all  deductions 
were  made  it  was  found  that  the  number  of  men  was  amply  sufficient 
for  present  needs.  To  them  we  must  add  the  skilled  workmen  who 
had  joined  the  Army  and  who,  as  far  as  possible,  were  brought  home 
to  serve  their  country  in  an  industrial  capacity. 

All  the  workmen  were  assigned  either  to  the  works  already  in 
existence — which  in  many  cases  were  short  of  hands  and  unable  for 
this  reason  to  fulfil  their  contracts — or  else  they  were  allotted  to  the 
new  factories. 

But  in  view  of  influence  wielded  by  the  labour  unions,  various 
provisions  were  inserted  in  the  Munitions  Act.  They  related  to  the 
settlement  of  labour  disputes  and  to  the  prohibition  of  strikes  and 
lock-outs  the  grounds  for  which  had  not  been  submitted  to  the  Board 
of  Trade. 

To  obviate  such  disputes,  which  were  generally  called  forth  by  the 
excessive  profits  accruing  to  the  employers  and  the  demands  of  the 
wage-earners,  the  system  of  " controlled  establishments"  was  insti- 
tuted. Every  establishment  engaged  on  munition  work  was  placed, 
so  far  as  the  regulation  of  profits  and  salaries  was  concerned,  under 
direct  government  control.  Any  modification  in  the  rate  of  wages 
had  to  be  submitted  to  the  Ministry  of  Munitions,  which  had  power 
to  refer  the  question  to  an  arbitration  board  specially  set  up  by  the  act. 

To  complete  this  rapid  survey  it  must  be  added  that  a  depart- 
ment was  created  by  the  Ministry  of  Munitions,  under  the  control 
of  an  under-secretary,  whose  special  business  it  was  to  examine 
war  inventions. 

On  the  2oth  of  December,  1915,  Mr.  Lloyd  George,  in  a  speech 
delivered  in  the  House  of  Commons,  summarised  the  results  of  the 
first  six  months  of  his  tenure  of  office.  We  will  take  a  few  points. 

Orders  placed  before  the  formation  of  the  department  were 
delivered  with  an  increase  of  16  per  cent  on  previous  deliveries.  The 
number  of  new  orders  placed  increased  by  80  per  cent. 

The  state  regulation  of  the  metal  market  resulted  in  a  saving  of 
from  15  to  20  million  pounds  sterling. 

The  present  output  of  shells  for  a  single  week  is  three  times  as 
great  as  the  entire  output  for  May,  1915,  which  means  that  the  rate  of 
production  is  twelve  times  as  great. 

The  enormous  quantity  of  shells  consumed  during  the  offensive  of 
September,  1915,  was  made  good  in  a  month.  The  time  will  soon 
come  when  a  week  will  suffice. 


WAR-TIME  REGULATION  OF  TRADE  AND  INDUSTRY       281 

Theputput  of  machine  guns  is  five  times  as  great;  that  of  hand 
grenades  is  increased  forty  fold. 

The  production  of  heavy  artillery  has  been  accelerated,  and  the 
heaviest  guns  of  the  early  days  of  the  war  are  now  among  the  lightest. 

An  explosive  factory  in  the  south  of  England,  which  on  October 
15,  1915,  started  to  fill  bombs  at  the  rate  of  500  a  week  with  a  staff  of 
60,  was  in  March,  1916,  turning  out  15,000  a  week  with  a  staff  of  250. 

An  entirely  new  factory  which  started  work  at  the  end  of  October, 
1915,  with  one  filling  shed  and  six  girl  fillers  and  an  output  of  270  a 
week,  was  in  March,  1916,  employing  175  girls  and  handling  15,000 
bombs  a  week. 

The  Ministry  of  Munitions  has  built,  or  is  building,  housing 
accommodation  for  60,000  workers,  and  canteens  and  mess-rooms  in 
munition  works  now  give  accommodation  for  500,000  workers  a  day. 

3.    ENGLAND'S  MACHINERY  FOR  INDUSTRIAL 
CONTROL1 

It  has  been  said  that  there  are  250,000  persons  employed  in 
England  in  connection  with  censorship  and  with  various  phases  of 
domestic  and  foreign  business  regulation  for  purposes  of  war.  This 
figure  may  include  also  the  civil  employees  in  the  Munitions  and  War 
departments,  but  it  shows  how  the  business  side  of  the  war  has  to  be 
organized.  An  idea  of  the  extent  and  intricacy  of  British  control  of 
business  activities  may  be  obtained  from  the  following  list  of  control 
boards,  recently  made  public  by  the  British  government  in  a  directory 
printed  for  the  convenience  of  persons  having  business  with  them. 

There  is  no  indication,  in  the  official  publication,  of  how  the  ac- 
tivities of  all  these  boards  and  committees  are  co-ordinated  and 
made  to  do  team-work  in  accordance  with  a  central  policy. 

Acetylene  Committee  Agriculture  and  Fisheries  Board  and 

Admiralty    Coasting   Trade    Com-  Royal  Agricultural  Society  (Joint 

mittee  Committee) 

Admiralty  Board  of  Inventions  and  Alcohol  Supplies  for  War  Purposes 

Research  Advisory  Committee 

Aerial  Transport  Committee  Army    Contracts    Advisory    Com- 

Aeronautics  Advisory  Committee  mittee 

Agricultural  Machinery  and  Imple-  Army  Supplies  Commercial  Depart- 
ments Branch  of  the  Ministry  of  ment 
Munitions  Black  List  Committee 

1  Adapted  from  The  Americas.  Copyright  by  National  City  Bank,  New  York, 
1918. 


282 


ECONOMICS  OF  WAR 


Bleaching  Powder  Committee 

Blockade  Ministry 

Blockade  Ministry  Committee 

Board  of  Customs  and  Excise 

Breathing  Apparatus  in  Coal  Mines 

Building  Labor  Committee 

Building  Trades,  Central  Advisory 
Committee 

Business  Names  Registry 

Butter  Supplies  Advisory  Com- 
mittee 

Canal  Control  Committee 

Capital  Issues  Committee 

Cargoes  (Delay  in  Unloading)  Com- 
mittee 

Cargoes  (Diverted)  Committee 

Cargoes — Insurance 

Cattle,  British,  Committee  on  Utili- 
zation of 

Chemical  Trade  Committee 

Coal  Exports  Committee 

Coal  Mines  (Controller  of)  Advisory 
Board 

Coal  Mines  Department 

Cocaine  or  Opium  (Permits)  Com- 
mittee 

Commercial  and  Industrial  Policy 
Committee 

Commission  Internationale  de  Ravi- 
taillement 

Contraband  Committee 

Contracts  Made  Prior  to  the  War 

Controlled  Establishments — Board 
of  Referees  on  Profits 

Copper  Committee 

Cotton  Control  Board 

Cotton  Exports  Committee 

Cotton  Growing  in  the  British  Em- 
pire, Committee  on 

Defence  of  the  Realm  (Licensed 
Trade  Claims)  Commission 

Defence  of  the  Realm  (Losses)  Com- 
mission 

Delay  in  Unloading  Cargoes  Com- 
mittee 

Diamond  Export  Committee 

Distributing  Trades  (Scotland) 
Committee 

Diverted  Cargoes  Committee 

Dyes,  Commissioner  for 

Electrical  Trades  Committee 

Electric  Power  Supply  Committee 

Empire  Cotton  Growing  Committee 

Enemy  Debts  Committee 


Enemy  Exports  Committee 

Enemy  Supplies  Restriction  Depart- 
ment 

Engineering  and  Shipbuilding  Es- 
tablishments Production  Com- 
mittee 

Excess  Profits  Duty  Committee 

Exports  and  Imports  Licensing 
Committee 

Exports  Committee 

Fair  Prices  Committee 

Fertilizers  Committee 

Finance  Department  (Blockade) 

Fish  (Coarse),  Irish  Committee 

Fish  (Cured)  Committee 

Fish  Food  and  Motor  Loan  Commit- 
tee 

Fish  Food  Committee 

Fish  (Tinned)  Imports  Committee 

Fisheries  Sea  (Scottish)  Committee 

Fresh  Water  Fish  Committee 

Flour  Mills  Control  Committee 

Food  Ministry 

Food  Production  Advisory  Commit- 
tee 

Food  Production  Department 

Food  Production  in  Ireland  Advi- 
sory Committee 

Food  Production  in  Ireland  Depart- 
mental Committee 

Food  Production  in  Scotland  Com- 
mittee 

Forage  Committee  (Farm  Produce) 

Foreign  Claims  Office 

Foreign  Trade  Debts  Committee 

Foreign  Trade  Department 

Fruits  (Import  Licenses)  Committee 

Fuel  Research  Board 

Glass  and  Optical  Instruments  Com- 
mittee 

Grain  and  Potato  Crops  (1917) 
Committee 

Grain  Supplies  Committee 

High  Explosives  Committee 

Hop  Control  Commitee 

Horse  Breeding  Committee  (No.  2) 

Horses  (Utilization  and  Feeding  of) 
Committee 

Housing  (Building  Construction) 
Committee 

Imperial  Mineral  Resources  Bureau 
(Committee  on  Proposed  Estab- 
lishment) 


WAR-TIME  REGULATION  OF  TRADE  AND  INDUSTRY        283 


Imperial  Preference,  Ministerial 
Committee  on 

Import  Restrictions  Department 

Indian  Wheat  Committee 

Industrial  (War  Inquiries)  Branch 

Information  Department  of  Foreign 
Office 

Insurance  Intelligence  Department 

Insurance  of  British  Ships'  Cargoes 

Invention  and  Research,  Admiralty 
Board  of 

Iron  and  Steel  Industries  Committee 

Labor  Advisory  Committee  (Na- 
tional Service  Department) 

Labor  Ministry 

Labor,  Substitutionary  (Scotland) 
Committee 

Leather  Supplies  Central  Advisory 
Committee 

Licensing  Committee  (Exports  and 
Imports) 

Liquor  Trade  (Financial  Aspects  of 
Control  and  Purchase) 

Liquor  Traffic,  Central  Control 
Board 

Lubricating  Oil  Advisory  Commit- 
tee 

Machine  Tool  Committee 

Machinery  and  Implements,  Agri- 
cultural 

Machinery,  Central  Clearing  House 
for 

Meat 

Mercantile  Marine  (Seamen),  Con- 
ditions of  Employment,  Inter- 
departmental Committee 

Mercantile  Marine  (Seamen's  Ef- 
fects) Grants  for  Losses  through 
Hostile  Operations  at  Sea  Com- 
mittee 

Mercantile  Marine  Standard  Uni- 
form Committee 

Metal  (Non-ferrous)  Trades  Com- 
mittee 

Metals  and  Materials  Economy 
Committee 

Milk  Distribution  Committee 

Mine  Rescue  Research  Committee 

Mineral  Resources  Advisory  Com- 
mittee 

Mineral  Resources  Bureau  Com- 
mittee 

Munitions  Boards  of  Management 
Executive  Committee 


Munitions  (Inter-allied)  Bureau 

Munitions  Finance  Committee 

Munitions  Financial  Advisory  Com- 
mittee 

Munitions  Hours  of  Labor  Com- 
mittee 

Munitions  Inventions  Panel 

Munitions  Labor  Priority  Commit- 
tee 

Munitions  Ordnance  Committee 

Munitions  Parliamentary  Executive 
Committee 

Munitions  Priority  Advisory  Com- 
mittee 

Munitions  Workers'  Health  Com- 
mittee 

Munitions  Works  Board 

National  Service  Central  Advisory 
Committee 

National  Service  Department 

National  Service  (Ireland)  Depart- 
ment 

Oats  Control  Committee 

Oils  and  Fats  Branch  of  the  Ministry 
of  Munitions 

Oranges,  Advisory  Committee  on 
Imports 

Overseas  and  Government  Loans 
Committee 

Overseas  Price  Disposal  Committee 

Paper  Supplies  Royal  Commission 

Passenger  Traffic  between  United 
Kingdom  and  Holland,  etc.,  Com- 
mittee 

Peat  Deposits  in  Ireland,  Committee 
on 

Petrol  Control  Department 

Petroleum  Executive 

Petroleum  Pool  Board 

Petroleum  Regulation  of  Supplies 
Committee 

Pig-Breeding  Industry  (Ireland)  De- 
partmental Committee 

Port  and  Transit  Executive  Com- 
mittee 

Potash  Production 

Poultry  Advisory  Committee 

Preference,  Imperial 

Pre-War  Contracts  Committee 

Prize  Cargoes  Release  Committee 

Prize  Claims  Committee 

Prize  (Overseas)  Disposal  Com- 
mittee 

Production,  Committee  on 


284 


ECONOMICS  OF  WAR 


Purchases  Department 
Railway  Executive  Committee 
Railway  Executive  Committee  (Ire- 
land) 

Rationing  Consultative  Committee 
Ravitaillement,  Commission  Inter- 
nationale de 
Raw  Materials  Finance  Branch  of 

the  War  Office 
Reconstruction  Ministry 
Registry  of  Business  Names 
Registry  of  Business  Names  Com- 
mittee (Ireland) 

Reserved  Occupations  Committee 
Road  Stone  Control  Committee 
Rubber  and  Tin  Exports  Committee 
Scientific  and  Industrial  Research 

Department 

Scottish  Shale  Industries  Committee 
Seamen,  Conditions  of  Employment 
Shipbuilding  Advisory  Committee 
Shipbuilding  Construction  Commit- 
tee, Ministry  of  Shipping 
Ship  Licensing  Committee,  Minis- 
try of  Shipping 

Ship  (Neutral)  Detention  Commit- 
tee 

Shipping  and   Shipbuilding   Indus- 
tries Committee 

Shipping  (International)  Committee 
Shipping  Control  Committee 
Shipping  Ministry 
Spirits  and  Wine,  Delivery  of  from 

Bond,  Advisory  Committee  to 
Standard   Uniform   for   Mercantile 

Marine  Committee 
Sugar  Supplies  Royal  Commission 
Sulphate  of  Ammonia  Distribution 

Committee 
Sulphur,    Sicilian,    Committee    on 

Supplies  of 

Sulphuric  Acid  and  Fertilizer  Trades 
Committee 


Tea  Advisory  Committee 

Tea  Control  Committee 

Timber  Supplies  Department 

Tin  and  Rubber  Exports  Committee 

Tobacco  and  Matches  Control 
Board 

Tobacco  (Import  Licenses)  Com- 
mittee 

Tonnage  Priority  Committee 

Trade  after  the  War,  Committee  on 
Commercial  and  Industrial  Policy 

Trade,  Development  of,  between 
British  Empire  and  Belgium 

Trading  with  the  Enemy  Advisory 
Committee 

Treaties  with  Enemy  Countries  Re- 
vision Committee 

Trench  Warfare  Chemical  Advisory 
Committee 

Trench  Warfare  Commercial  Advi- 
sory Committee 

Trench  Warfare  Mines  Committee 

Trench  Warfare  Research  Advisory 
Panel 

Trench  Warfare  Supply  Depart- 
ment, Chemical  Section 

Utilization  and  Feeding  of  Horses 
Committee 

War  Output,  National  Advisory 
Committee 

War  Risks  Insurance  Office 

War  Trade  Advisory  Confmittee 

War  Trade  Department 

War  Trade  Intelligence  Department 

War  Trade  Statistical  Department 

Wheat  Executive 

Wheat  Supplies — Royal  Commission 

Woods  and  Stones  (Import  Licenses) 
Committee 

Wool  Purchase  Central  Advisory 
Committee 

Woolen  and  Worsted  Industries 
Board  of  Control 


WAR-TIME  REGULATION  OF  TRADE  AND  INDUSTRY       285 

XXVII.    United  States  Regulations 
i.     HOW  THE  NEUTRALS  HELP  GERMANY1 

Germany  has  been  making  a  maximum  use  of  her  small  neutral 
neighbors  in  a  highly  profitable  mutual  arrangement  to  counter  what 
would  otherwise  be  the  disastrous  effects  of  the  loss  of  control  of  the 
seas.  That  the  aid  thus  brought  to  Germany  was  very  considerable  is 
proved  by  the  figures  adduced  below  ;2  and  that  the  case  of  Switzerland 
is  only  typical  of  all  the  neutral  neighbors  of  Germany  is  a  matter  of 
common  knowledge. 

Exports  by  the  neutrals  into  Germany  occur  in  two  forms:  First, 
there  is  direct  re-exportation  of  materials  imported  from  abroad. 
This  has  formed  a  considerable  volume  of  the  trade  of  Germany  and 
the  neutrals  and  has  by  no  means  yet  ceased.  The  second  form  is  the 
export  of  domestic  products  and  the  filling  of  the  deficit  by  importa- 
tion from  abroad,  mainly  from  the  United  States.  The  neutrals  are 
profuse  in  their  promises  that  no  material  imported  from  America 
will  be  re-exported  into  Germany. 

To  direct  and  indirect  re-exportation  must  be  added,  finally, 
smuggling,  which  has  always  been  a  factor  in  the  evasion  of  blockades. 
In  Switzerland  a  member  of  the  Commerce  Department  of  the  govern- 
ment was  recently  convicted  of  this  offense  and  is  serving  a  prison 
sentence. 

That  this  aid  was  precious  to  the  Central  Powers  and  enabled 
them  to  stave  off  starvation  and  consequent  submission  can  be 
corroborated  in  various  ways.  First,  in  spite  of  the  enormous  volume 
of  imports  from  the  neutrals  Germany  was  on  the  verge  of  starva- 
tion during  the  last  winter,  the  economic  crisis  reaching  its  critical 
stage  coincidentally  with  the  political  crisis  in  the  Reichstag  at  the 
beginning  of  July.  The  most  potent  cause  of  this  political  upheaval 
was  the  economic  destitution,  which  cast  its  melancholy  shadow  over 
the  whole  nation  and  increased  the  desperation  of  people  and  Reichstag 
till  it  exploded  in  a  violent  outburst  of  wrath  against  the  government. 

1  By  James  Louis  Moore.  Adapted  from  the  New  York  Times,  August  19, 
1917. 

ED.  NOTE. — Mr.  Moore  is  the  Bayard  Cutting  Fellow  of  Harvard  University 
for  European  Research  in  Modern  History  and  International  Law.  The  read- 
ing clearly  shows  the  necessity  of  commercial  agreements  with  neutral  countries, 
such  as  that  concluded  with  Norway  on  May  10,  1918,  which  covers  about 
50  commodities  (War  Trade  Board  Regulations,  103). 

1  ED.  NOTE. — Extensive  figures  were  given  by  the  writer  to  prove  the  case  for 
Switzerland. 


286  ECONOMICS  OF  WAR 

Secondly,  the  general  impression  of  press  and  people  in  Germany 
and  Switzerland  is  that  the  most  sensational  part  of  the  speech  of 
Erzberger>  which  brought  the  crisis  into  being,  consisted  of  an  expose 
proving  the  futility  of  the  submarine  policy  and  impugning  the  judg- 
ment of  the  officials  responsible  for  its  inauguration,  inasmuch  as  the 
entrance  of  the  United  States  into  the  list  of  Germany's  enemies, 
which  resulted  therefrom,  was  likely  to  result  in  a  curtailment  of  the 
imports  obtained  through  the  neutrals,  and  without  a  continuance  of 
these  imports  Germany  could  not  hold  out  long. 

2.  GENERAL  POLICIES  OF  THE  WAR  TRADE  BOARD1 

The  activities  of  the  Board  are  roughly  divisible  into  three 
spheres — those  relating  to  the  control  of  exports,  those  relating  to 
the  control  of  imports,  and  those  relating  to  enemy  trade. 

The  Board  has  sought  first  to  conserve  for  ourselves  and  for 
those  associated  with  us  in  the  war  such  commodities  as  are  required 
to  maintain  adequately  the  economic  life  of  the  several  nations  and 
to  carry  out  their  war  programs.  Other  objects  sought  have  been 
to  prevent  our  commodities  reaching  the  enemy  directly  or  indirectly, 
as  by  releasing  like  goods  for  the  enemy,  and  to  prevent  commercial 
transactions  between  persons  within  the  United  States  and  an  enemy 
or  an  ally  of  the  enemy. 

In  undertaking  to  supply  the  food  and  other  vital  wants  of  neutral 
peoples,  under  carefully  considered  agreements,  the  Board  has  desired 
"to  prevent  acute  suffering  in  those  countries  and  to  prevent  them 
from  falling  under  the  economic  power  of  the  enemy." 

These  trade  agreements  the  Board  has  regarded  as  being  particu- 
larly important  in  the  case  of  those  European  neutrals  which  are  in 
trade  relations  with  the  enemy.  Against  these  European  neutrals, 
the  report  goes  on  to  say,  "  temporary  embargoes  have  been  enforced 
pending  the  securing  of  information  indispensable  to  permit  the  Board 
to  issue  licenses." 

An  agreement  has  been  concluded  with  Switzerland,  assuring  to 
the  Swiss  the  periodic  receipt  of  a  stipulated  grain  ration  and  of  other 
articles  required  to  maintain  the  economic  existence  of  the  people  of 
Switzerland.  "The  Swiss  government,  on  the  other  hand,  gives 
satisfactory  assurances  against  exportation  to  our  enemies  of  imported 
commodities  and  agrees  to  limit,  in  certain  other  respects,  her  trading 
with  the  enemy." 

1  From  War  Trade  Board  Journal  (March,  1918),  pp.  15-16. 


WAR-TIME  REGULATION  OF  TRADE  AND  INDUSTRY       287 

A  still  more  definite  achievement  is  discoverable  in  the  Board's 
references  to  the  Northern  European  neutrals,  where  temporary 
embargoes  are  in  force  pending  the  conclusion  of  comprehensive 
agreements.  The  report  continues: 

Their  exports  of  foodstuffs  to  the  Central  Powers  have  declined  from  last 
year's  corresponding  exports  in  amounts  estimated  at  from  65  to  85  per  cent, 
depending  on  the  neutral,  and  there  has  been  a  decrease  in  the  export  of 
many  other  important  commodities. 

In  November,  1917,  we  became  party  to  Great  Britain's  tentative 
agreement  with  Norway,  as  a  result  of  which  action  on  our  part  1,400,000 
tons  dead-weight  of  Norwegian  shipping  were  chartered  into  the  service  of 
the  United  States  and  Great  Britain  for  the  period  of  the  war.  Shortly 
following,  temporary  agreements  were  concluded  with  Holland  and  with 
Sweden.  That  with  Holland  gives  us  the  use,  for  periods  up  to  90  days,  of 
450,000  tons  dead-weight  of  her  shipping  which  had  heretofore,  for  a  long 
period,  lain  idle.  The  agreement  with  Sweden  gives  us  the  use  for  three 
months  of  tonnage  estimated  at  250,000  tons  dead-weight  which  had  not 
theretofore  been  employed  in  services  useful  to  us. 

Specific  accomplishments  of  this  character  are,  however,  far  from 
constituting  a  full  measure  of  the  results  achieved  by  the  War  Trade  Board. 
The  elimination  of  enemy  advantage  from  our  trade  and,  to  a  considerable 
extent,  from  that  of  the  world,  the  securing  and  conserving  of  commodities 
essential  to  ourselves  and  those  associated  with  us  in  the  war,  the  bringing 
of  shipping  generally  into  the  services  most  useful  to  us — these  results  can 
not  be  accurately  stated  or  appraised  at  the  present  time,  nor  have  they  been 
accomplished  by  any  single  act  or  agreement. 

The  report  explains  the  use  of  bunker-coal  licenses,  as  being 
intended  to  assure  the  utilization  of  America's  restricted  supply  of 
fuel  primarily  by  ships  performing  services  useful  to  the  United 
States  and  its  associates  in  the  war. 

Abolition  of  calls  at  Halifax  for  ships  sailing  between  United 
States  and  European  neutral  ports,  which  is  foreshadowed  in  a  para- 
graph dealing  with  the  endeavors  of  the  Board  to  reduce  the  necessary 
control  machinery  over  sailings,  has  since  been  accomplished;  "letters 
of  assurance,"  heretofore  issued  by  the  British  Embassy,  are  also  no 
longer  required. 

The  extent  of  the  business  under  the  control  of  the  Board  may  be 
gathered  from  the  fact  that  the  Bureau  of  Exports  has  handled 
approximately  425,000  applications  for  licenses  to  export  and  was, 
at  the  date  of  the  report,  passing  upon  between  four  and  five  thousand 
applications  per  day. 


288  ECONOMICS  OF  WAR 

The  Bureau  of  Imports,  of  more  recent  formation,  has  received,  to 
January  i,  5,279  applications  for  licenses  to  import,  upon  which 
4,719  licenses,  covering  commodities  of  an  aggregate  value  of  $237,- 
810,949,  had  actually  been  issued. 

In  order  to  guide  merchants  in  their  transactions  with  foreigners, 
there  was  published  in  October  an  "Enemy  Trading  List"  containing 
the  names  of  individuals  and  associations  in  neutral  countries  who 
were  enemies  or  allies  of  enemies.  This  list  is  not  a  fixed  and 
unchanged  classification,  but  is  subject  to  constant  revision,  and  the 
Board  has  been  able  to  remove  from  the  original  list  many  firms  who 
have  cleared  themselves  of  the  taint  of  enemy  character. 

3.    EXPORTS  IN  TIME  OF  WAR1 

Whereas  Congress  has  enacted,  and  the  President  has,  on  the  i5th 
day  of  June,  1917,  approved  a  law  which  contains  the  following  pro- 
visions: 

"Whenever,  during  the  present  war,  the  President  shall  find  that 
the  public  safety  shall  so  require,  and  shall  make  proclamation  thereof, 
it  shall  be  unlawful  to  export  from,  or  ship  from,  or  take  out  of,  the 
United  States  to  any  country  named  in  such  proclamation  any  article 
or  articles  mentioned  in  such  proclamation,  except  at  such  time  or 
times,  and  under  such  regulations  and  orders,  and  subject  to  such 
limitations  and  exceptions  as  the  President  shall  prescribe,  until 
otherwise  ordered  by  the  President  or  by  Congress:  Provided,  how- 
ever, That  no  preference  shall  be  given  to  the  ports  of  one  State  over 
those  of  another. 

"And  whereas  the  President  has  heretofore  by  proclamations 
dated  July  9, 1917,  August  27, 1917,  September  7, 1917,  and  November 
28,  1917,  declared  certain  exports  in  time  of  war  unlawful,  and  the 
President  now  finds  that  the  public  safety  requires  that  such  proclama- 
tions be  amended  and  supplemented  in  respect  to  the  articles  and 
countries  hereinafter  mentioned: 

"Now,  therefore,  I,  Woodrow  Wilson,  President  of  the  United 
States  of  America,  do  hereby  proclaim  to  all  whom  it  may  concern, 
that  the  public  safety  requires  that  the  following  articles,  namely,  all 
kinds  of  arms,  guns,  ammunition,  and  explosives,  machines  for  their 
manufacture  or  repair,  component  parts  thereof,  materials  or  ingredi- 

1  By  Woodrow  Wilson.  Adapted  from  a  proclamation  of  the  President, 
February  16,  1918,  extending  control  of  exports  to  every  commodity  of  commerce, 
in  the  War  Trade  Board  Journal  (March,  1918),  pp.  4-5. 


WAR-TIME  REGULATION  OF  TRADE  AND  INDUSTRY       289 

ents  used  in  their  manufacture,  and  all  articles  necessary  or  convenient 
for  their  use;  all  contrivances  for,  or  means  of,  transportation  on  land 
or  in  the  water  or  air,  machines  used  in  their  manufacture  or  repair, 
component  parts  thereof,  materials  or  ingredients  used  in  their  manu- 
facture, and  all  instruments,  articles,  and  animals  necessary  or  con- 
venient for  their  use;  all  means  of  communication,  tools,  implements, 
instruments,  equipment,  maps,  pictures,  papers,  and  other  articles, 
machines,  and  documents  necessary  or  convenient  for  carrying  on 
hostile  operations;  all  kinds  of  fuel,  food,  foodstuffs,  feed,  forage,  and 
clothing,  and  all  articles  and  materials  used  in  their  manufacture; 
all  chemicals,  drugs,  dyestuffs  and  tanning  materials;  cotton,  wool, 
silk,  flax,  hemp,  jute,  sisal,  and  other  fibers  and  manufactures  thereof; 
all  earths,  clay,  glass,  sand,  stone,  and  their  products;  animals  of 
every  kind,  their  products  and  derivatives;  hides,  skins,  and  manu- 
factures thereof;  all  non-edible  animal  and  vegetable  products;  all 
machinery,  tools,  dies,  plates,  and  apparatus  and  materials  necessary 
or  convenient  for  their  manufacture;  medical,  surgical,  laboratory, 
and  sanitary  supplies  and  equipment;  all  metals,  minerals,  mineral 
oils,  ores,  and  all  derivatives  and  manufactures  thereof;  paper  pulp, 
books,  and  all  printed  matter  and  materials  necessary  or  convenient 
for  their  manufacture;  rubber,  gums,  rosins,  tars,  and  waxes,  their 
products,  derivatives,  and  substitutes,  and  all  articles  containing 
them;  wood  and  wood  manufactures;  coffee,  cocoa,  tea,  and  spices; 
wines,  spirits,  mineral  waters,  and  beverages;  and  all  other  articles  of 
any  kind  whatsoever  shall  not,  on  and  -after  the  sixteenth  day  of 
February,  in  the  year  one  thousand  nine  hundred  and  eighteen,  be 
exported  from,  or  shipped  from,  or  taken  out  of,  the  United  States 
or  its  territorial  possessions  to  Abyssinia,  Afghanistan,  Albania, 
Argentina,  Austria-Hungary,  Belgium,  her  colonies,  possessions,  and 
protectorates,  Bolivia,  Brazil,  Bulgaria,  China,  Chile,  Colombia, 
Costa  Rica,  Cuba,  Denmark,  her  colonies,  possessions,  and  pro- 
tectorates, Dominican  Republic,  Ecuador,  Egypt,  France,  her 
colonies,  possessions,  and  protectorates,  Germany,  her  colonies, 
.possessions,  and  protectorates,  Great  Britain,  her  colonies,  posses- 
sions, and  protectorates,  Greece,  Guatemala,  Haiti,  Honduras,  Italy, 
her  colonies,  possessions,  and  protectorates,  Japan,  Liechtenstein, 
Liberia,  Luxembourg,  Mexico,  Monaco,  Montenegro,  Morocco, 
Nepal,  the  Netherlands,  her  colonies,  possessions,  and  protectorates, 
Nicaragua,  Norway,  Oman,  Panama,  Paraguay,  Persia,  Peru,  Portu- 
gal, her  colonies,  possessions,  and  protectorates,  Roumania,  Russia, 


2QO  ECONOMICS  OF  WAR 

Salvador,  San  Marino,  Serbia,  Siam,  Spain,  her  colonies,  possessions, 
and  protectorates,  Sweden,  Switzerland,  Turkey,  Uruguay,  or  Vene- 
zuela, except  under  license  granted  in  accordance  with  regulations  or 
orders  and  subject  to  such  limitations  and  exceptions  as  have  hereto- 
fore been,  or  shall  hereafter  be,  prescribed  in  pursuance  of  the  powers 
conferred  by  said  act  of  June  15,  1917." 

4.    PURPOSE  OF  RESTRICTING  IMPORTS1 

The  benefits  to  be  derived  from  the  license  system  are  numerous, 
one  of  the  most  obvious  being  that  the  present  control  over  the  dis- 
tribution and  use  of  raw  materials,  which  are  now  imported  under 
license,  will  be  extended  to  all  materials,  so  that  if  at  any  time  a 
shortage  exists  or  appears  imminent  in  any  imported  material  the 
supply  thereof  may  be  directed  to  the  uses  most  vital  to  our  martial 
requirements. 

But  the  most  effective  manner  in  which  this  weapon  of  import 
control  may  be  used  against  the  enemy  is  the  prevention  of  trading 
with  firms  of  pro-enemy  character.  No  commerce,  of  course,  exists 
between  the  United  States  and  the  countries  with  which  we  are  at  war. 
Unfortunately,  however,  largely  due  to  the  foresightedness  of  our 
enemy  in  long  years  of  preparation,  individuals  and  firms  are  estab- 
lished throughout  the  world  whose  controlling  motive  is  the  advance- 
ment of  German  interests.  Still  more  unfortunate  is  the  fact  that 
such  agencies  have  existed  in  our  own  land.  To  stamp  out  all 
activities  among  such  agencies  and  to  safeguard  our  well-intentioned 
citizens  from  dealing  with  them,  we  must  proceed  with  the  utmost 
promptness  and  vigor.  The  forms  of  activity  of  these  concerns  and 
the  subtle  and  intricate  methods  pursued  by  them  are  innumerable, 
but  are  invariably  directed,  either  by  furnishing  information,  smug- 
gling supplies  through  the  blockade,  providing  credits,  or  hoarding 
for  post-war  purposes,  to  giving  aid  and  comfort  to  the  enemy. 

Before  the  advent  of  the  United  States  into  the  war  Great  Britain 
and  her  Allies  found  it  necessary  to  surround  the  importation  into  this 
country  of  commodities  controlled  by  them  with  various  safeguards, 
in  the  form  of  guaranties  and  agreements  procured  from  importers. 
Now  that  we  have  entered  the  war  and  established  our  export  and 
import  control,  our  Allies  have  very  willingly  relinquished  to  us  the 
duty  of  seeing  that  the  imports  coming  forward  to  us  are  used  for  our 
own  legitimate  purposes,  and  are  not  re-exported  to  pro-German  firms 

1  Adapted  from  War  Trade  Board  Journal  (March,  1918),  pp.  11-12. 


WAR-TIME  REGULATION  OF  TRADE  AND  INDUSTRY       291 

in  neutral  countries  to  trickle  through,  either  physically  or  in  the  form 
of  credits,  to  Germany,  or  accumulated  to  foster  Germany's  commerce 
after  the  war. 

To  accomplish  these  results  the  War  Trade  Board,  through  its 
Bureau  of  Imports,  has  adopted  certain  regulations  in  connection 
with  the  importation  of  many  of  these  raw  materials,  to  which  it  is  the 
duty  of  every  patriotic  American  citizen  to  give  complete  arid  whole- 
hearted support. 

Organizations  have  been  voluntarily  created  in  many  of  the  trades, 
such  as  rubber,  wool,  jute,  tin,  etc.,  to  act  as  consignees  when  required 
and  to  perform  other  duties  in  connection  with  importations,  under 
and  by  direction  of  the  War  Trade  Board. 

Every  effort  will  be  made  to  administer  these  regulations  with  the 
slightest  possible  detriment  to  legitimate  business  interests,  but  when 
it  is  considered  that  the  transmittal  of  a  few  pounds  of  rubber  or 
copper  to  Germany  may  cost  the  liyes  of  scores  of  our  men  at  the 
front,  and  that  each  day's  supply  of  wool,  or  food,  or  money  to  the 
enemy  means  another  day's  war,  with  its  accompanying  toll  of  lives, 
the  very  thought  of  hesitancy  or  weakness  is  inconceivable.  The 
policy  will  be  "safety  first"  for  our  soldiers,  regardless  of  every  other 
consideration.  Persons  and  firms  in  this  country,  as  well  as  abroad, 
who  before  our  entrance  into  the  war  had  little  sympathy  with  the 
war-time  commercial  safeguards  of  the  Allies  must  be  taught  that 
these  are  now  matters  of  the  first  importance  to  this  country,  and 
violators  of  present  restrictions  need  expect  no  favors,  regardless  of 
how  important  such  individuals  or  firms  may  be  in  the  business  world. 
The  time  has  come  when  all  must  realize  that  the  war  is  not  limited  to 
combating  the  enemy  on  the  battle  fields  of  France,  but  must  be 
carried  into  our  everyday  transactions  of  life,  and  that  our  business 
practices  must  be  remolded,  where  necessary,  to  meet  existing  con- 
ditions. 

It  is  unnecessary  to  mention  other  desirable  results  which  may  be 
obtained  by  this  import  control,  such  as  the  gathering  of  trade 
information  or  the  conservation  of  tonnage  by  elimination  of  non- 
essentials. 

No  anxiety  need  be  felt  by  importers  that  there  will  be  any  serious 
restrictions  of  the  importation  of  necessary  articles  if  the  transaction 
does  not  involve  dealing  with  an  enemy  or  ally  of  an  enemy,  or  other- 
wise giving  him  aid  or  comfort.  If  the  importer  endeavors  diligently 
and  in  a  spirit  of  cooperation  to  comply  with  the  requirements  of 


292  ECONOMICS  OF  WAR 

the  War  Trade  Board,  no  loss  and  but  slight  inconvenience  need  be 
anticipated. 

Since  November  28  last,  import  licenses  have  been  required  for 
many  of  the  basic  raw  materials,  and  importers  are  already  familiar 
with  the  very  simple  method  of 'procuring  them.  The  added  incon- 
venience of  applying  for  licenses  for  all  importations  will  be  negligible 
in  comparison  with  the  advantages  secured.  The  question  of  what 
does  or  does  not  require  a  license,  with  its  accompanying  uncertainty 
and  delay,  will  be  eliminated. 

5.     PROBLEMS  OF  THE  ORDNANCE  DEPARTMENT1 

In  order  to  make  the  statement  comprehensible  as  to  the  activities 
and  responsibilities  of  the  Ordnance  Department,  let  us  consider  it 
from  the  standpoint  of  the  obligation  put  upon  that  department  in 
respect  to  a  single  unit  of  the  Army.  The  smallest  unit  bringing  into 
play  all  classes  of  arms  and  all  fbrms  of  munitions  and  equipment  is 
an  army  division.  To  simplify  the  description  at  the  expense  of 
exactness,  an  army  division  consists  of  two  brigades,  each  brigade 
consisting  of  two  infantry  regiments,  one  machine-gun  battalion,  two 
regiments  of  75-mm.  field  artillery,  one  regiment  of  field  howitzers  of 
155  mm.,  and  one  battery  of  trench  mortars.  These  make  up  the 
primary  front-line  forces  and  are  supplemented  by  a  regiment  of 
engineers,  the  signal  corps,  and  the  aircraft  service.  Back  of  the  lines 
we  have  the  transport  trains  for  munitions  and  field  supplies,  the 
hospital  units,  heavy  artillery,  tanks,  and  special  reserve  field  artillery. 
For  the  equipment  of  a  division  the  Ordnance  Department  carries 
responsibility  for  furnishing  to  the  division  and  maintaining  always 
on  hand,  in  perfect  order  and  for  instant  use,  in  round  figures,  18,000 
rifles,  12,000  pistols,  224  heavy  guns,  768  automatic  rifles,  thirty-six 
anti-aircraft  machine  guns,  fifty  75-mm.  field  artillery,  twenty-four 
i55-mm.  howitzers,  twelve  6-in.  trench  mortars,  twenty-four  3-in. 
trench  mortars,  twelve  i-lb.  guns,  together  with  all  necessary  and 
reserve  ammunition  and  also  trench-warfare  munitions  consisting  of 
bombs,  hand  grenades,  rockets,  signal  lights,  and  other  pyrotechnics. 

1  By  Samuel  McRoberts.  Adapted  from  an  address  in  Bridgeport,  Conn. 
Printed  in  the  Iron  Age  (March  14,  1918),  pp.  686-88. 

ED.  NOTE. — Mr.  McRoberts  is  vice-president  of  the  National  City  Bank  of 
New  York.  He  is  one  of  the  many  American  business  men  in  government 
service,  being  chief  of  the  Procurement  Division  of  the  Ordnance  Bureau  of  the 
War  Department. 


WAR-TIME  REGULATION  OF  TRADE  AND  INDUSTRY       293 

It  furnishes  the  personal  equipment  of  the  men  apart  from  clothing 
and  shoes,  consisting  of  such  articles  as  helmets,  bolos,  knives,  can- 
teens, haversacks,  cartridge  belts,  bandoliers,  and  other  miscellaneous 
personal  equipment  incident  to  field  service.  The  Ordnance  Depart- 
ment also  furnishes  the  machine  guns  and  drop  bombs  for  the  aircraft 
service. 

Behind  the  lines  the  Ordnance  Department  is  called  upon  to 
provide  all  forms  of  heavy  artillery  on  both  wheel  and  railroad 
mounts.  It  must  also  furnish  the  means  for  transporting  and  main- 
taining this  material  in  working  order,  consisting  of  automobile  trucks, 
tractors,  motorized  machine  shops  for  field  service,  and  extensive 
permanent  machine  shops  for  repairs  of  all  classes  of  equipment,  the 
repair  of  gun  carriages,  and  the  relining  of  guns.  From  a  strictly 
military  standpoint  the  number  of  divisions  to  be  put  into  the  field 
roughly  determines  the  program  upon  which  the  Ordnance  Depart- 
ment must  proceed. 

At  the  outbreak  of  the  war  the  quantity  of  material  on  hand  or 
immediately  available  was  negligible.  The  experience  already  gained 
in  the  European  war  showed  that  practically  all  existing  designs  for 
this  material  were  obsolete.  To  design  and  provide  for  the  manu- 
facture of  the  ordnance  equipment  and  deliver  it  in  France  as  rapidly 
as  it  might  be  required,  which  was  the  unprecedented  task  put  up  to 
the  Ordnance  Department  by  the  American  government  and  the  task 
that  General  Crozier  and  his  small  company  of  ordnance  officers  were 
forced  to  undertake,  the  department  consisted  of  79  officers  and  825 
enlisted  men,  and  I  will  undertake  to  give  you  some  idea  of  how  they 
fulfilled  that  obligation. 

First,  consider  some  'of  the  difficulties.  Take  the  subject  of 
engineering  and  design.  In  respect  to  rifles  there  were  then  in  exist- 
ence about  600,000  Springfield  rifles  of  a  type  pronounced  to  be 
efficient  and  practical  for  our  needs.  However,  they  had  been  manu- 
factured only  in  the  government  arsenals,  with  small  manufacturing 
organizations,  and  it  was  impossible  to  increase  their  production  so  as 
to  provide  the  rifles  in  anything  like  the  time  desired.  This  neces- 
sitated a  compromise  to  meet  conditions.  Manufacturing  facilities 
in  this  country  had  already  been  created  by  England  for  the  British 
rifle.  Unfortunately  the  rifle  was  inferior  to  that  in  the  hands  of  our 
enemies  and  had  to  be  redesigned  and  the  manufacturing  plants 
re-equipped  for  the  production  of  an  efficient  rifle  of  a  modified 
design. 


294  ECONOMICS  OF  WAR 

In  field  artillery  we  had  worked  out  designs  and  specifications  for 
guns  that  had  been  enthusiastically  approved  by  the  ordnance  experts 
of  this  and  other  countries,  but  the  conditions  under  which  we  entered 
the  war  necessitated  many  modifications  of  manufacture,  due  to  the 
necessity  for  interchangeability  of  ammunition  with  that  of  our  Allies 
and  the  enormous  difficulties  of  quick  manufacture.  All  field  artillery 
of  the  3-in.  or  75-mm.  type  is  horse  drawn,  which  limits  the  possible 
weight  of  the  gun  and  carriage.  While  the  experience  of  warfare  has 
developed  the  original  simple  field  piece  into  a  very  complicated 
machine,  the  original  limitation  of  650  Ib.  per  horse  must  still  be 
observed.  This  makes  the  design  of  a  field  carriage  one  of  the  most 
difficult  of  engineering  operations,  and  this  was  still  further  compli- 
cated by  the  fact  that  it  was  necessary  to  get  the  guns  at  the  quickest 
possible  rate  of  manufacture.  It  ordinarily  takes  years  for  designing 
and  perfecting  a  new  type  of  artillery.  To  adopt  the  French  and 
English  designs  also  presented  very  great  difficulties  from  the  stand- 
point of  time.  The  drawings  that  existed  in  this  country  were  out 
of  date — many  modifications  had  been  recently  made;  many  of  the 
features  of  the  French  gun  were  secrets  of  the  French  Ordnance 
Office  or  French  artillery  manufacturers  and  could  be  obtained  in 
accurate  form  only  by  the  cooperation  of  experts,  and  then  after 
prolonged  negotiations.  For  the  utilization  of  existing  seacoast  and 
naval  guns,  special  carriages  for  both  wheel  and  railroad  mounts  for 
heavy  artillery  had  to  be  designed  de  now. 

The  high-explosive  shell  is  practically  a  product  of  this  war  and 
had  to  be  designed  not  only  with  a  full  knowledge  of  the  experience 
gained  by  our  Allies  but  with  a  view  to  their  early  production  out 
of  materials  that  could  be  obtained  in  this  country.  The  design 
of  tractors,  tanks,  and  motor-repair  equipment  had  to  be  without 
precedent  or  experience. 

Never  in  the  history  of  warfare  has  chemistry  been  called  upon  to 
play  such  a  large  and  important  part.  Not  only  was  it  necessary  to 
design  propellants  from  well-known  materials,  but  new  combina- 
tions had  to  be  arrived  at  in  order  to  fit  our  needs  for  the  possible 
production  of  the  various  chemical  ingredients.  An  entirely  new 
element  has  been  introduced  by  gas  warfare.  The  first  use  of  gas 
released  before  a  favoring  wind  has  been  supplemented  by  the 
surer  and  more  scientific  way  of  placing  by  means  of  gas-loaded 
shells,  and  the  proportion  of  shells  loaded  with  gas  is  steadily 
increasing. 


WAR-TIME  REGULATION  OF  TRADE  AND  INDUSTRY       295 

Contracts  have  been  let  for  the  production  of  two  and  one-half 
million  rifles,  of  which  there  have  been  delivered  to  date  800,000,  and 
the  production  has  reached  11,000  per  day.  On  rifles  we  are  ahead  of 
our  needs,  and  provision  is  now  being  made  for  closing  down  one  of 
the  rifle  factories  so  as  to  obtain  its  facilities  for  increasing  the  output 
of  machine  guns. 

We  have  contracted  for  about  one  million  automatic  pistols  and 
revolvers.  All  the  pistol  facilities,  outside  of  the  Colt  organization, 
had  to  be  created.  We  have  received  only  160,000  to  date,  but  from 
now  on  the  production  will  rapidly  overtake  the  needs.  Of  small-arms 
ammunition  we  have  contracted  for  practically  three  and  one-half 
billion  rounds,  and  our  production  has  already  reached  greater  pro- 
portions than  was  ever  produced  by  either  France  or  Great  Britain. 
One  manufacturer  delivered  in  the  past  month  a  quantity  of  rifle 
ammunition  aggregating  more  than  125,000,000  rounds. 

We  have  let  contracts  for  270,000  machine  guns  of  various  types 
and  have  delivered  to  the  troops  45,000.  A  large  part  of  the  plant 
capacity  had  to  be  created,  and  heavy  deliveries  of  these  guns  will 
not  begin  until  April. 

For  motives  of  policy  it  is  not  permissible  to  discuss  the  details  of 
our  artillery  program.  It  was  obviously  impossible  to  furnish  this 
artillery  short  of  a  year,  and,  as  surplus  manufacturing  capacity 
existed  in  France  and  England,  by  furnishing  them  the  raw  materials 
we  are  meeting  our  artillery  equipment  for  the  first  year  from  that 
source.  Practically  all  of  our  artillery  program,  as  planned  at  present, 
is  under  contract,  and  already  we  have  reached  a  production  equal  to 
50  per  cent  of  that  of  France.  Two  hundred  and  ten  million  dollars 
was  expended  on  this  account  up  to  the  first  of  February.  In  the 
artillery  program  is  included  motorized  vehicles  amounting  to  some- 
thing over  40,000  pieces.  The  artillery  projectiles  contracted  to  date 
amount  to  a  total  cost  of  over  $1,000,000,000  for  over  60,000,000 
shells  of  all  descriptions.  Over  400,000,000  Ibs.  of  explosives  are  in 
process  of  manufacture,  and  two  smokeless-powder  plants  of  a  capa- 
city of  1,125,000  Ibs.  per  day  are  under  construction  and  a  third  under 
consideration.  Some  comparative  idea  can  be  gained  as  to  the  volume 
from  this  incident:  At  the  outbreak  of  the  European  war  I  was  asked 
by  one  of  the  European  governments  to  obtain  1,000,000  Ibs.  of 
smokeless  powder  in  the  United  States.  When  presented  to  the 
leading  powder  manufacturers,  they  called  attention  to  the  unpre- 
cedented size  of  the  order  and  said  it  could  be  furnished  only  by  an 


296  ECONOMICS  OF  WAR 

extension  of  their  plants,  and  deliveries  would  not  begin  until  four  or 
five  months  after  the  order  was  placed.  Today  we  are  planning  to 
furnish  our  own  Army  four  or  five  times  this  amount  per  day. 

I  do  not  want  to  confuse  by  going  into  too  much  detail,  but  the 
following  figures- are  significant:  We  have  purchased  $23,000,000 
worth  of  leather.  We  have  spent  over  $50,000,000  in  trench-warfare 
material  alone.  The  demand  for  pyrotechnics  is  such  as  to  require 
the  building  of  a  vast  fireworks  plant  after  filling  up  every  known 
manufacturer  with  all  that  he  would  take.  Drop  bombs  for  aero- 
planes is  an  item  that  runs  over  $300,000,000.  In  order  to  get 
chemical  raw  materials  we  have  been  forced  to  build  many  extensive 
plants  calling  for  a  huge  outlay.  To  provide  ammonia  and  nitrates, 
in  addition  to  the  foreign  supply  two  plants,  costing  approximately 
$30,000,000  each,  are  under  construction  and  still  others  are  being 
planned. 

There  has  been  considerable  discussion,  not  always  intelligent,  as 
to  the  best  form  of  organization  for  war  preparation.  There  has  been 
strong  sentiment  that  it  should  be  civilian  organization  headed  by  a 
business  man.  From  my  own  study  of  the  matter  I  am  convinced 
that  no  business  man  is  qualified  to  take  this  responsibility.  The 
plan  of  what  should  be  purchased  and  the  selection  of  the  type  of 
material  and  its  design  are  so  intimately  dependent  upon  a  knowledge 
of  military  affairs  and  the  condition  of  camp  life  and  actual  warfare 
that  no  civilian  can  bring  to  these  basic  operations  the  necessary 
experience.  The  correct  place  for  civilian  help  is  that  of  assisting 
the  army  experts  only  as  to  the  business  aspects  of  the  program,  those 
of  purchasing  and  manufacturing,  and  must  necessarily  be  subordi- 
nated to  the  military  experience. 

6.    THE  PRIORITY  SYSTEM  AT  WORK1 

There  has  been  created  in  the  War  Industries  Board  in  Washington 
a  Priorities  Board,  consisting  of  the  chairman  of  the  War  Industries 
Board,  the  Priorities  Commissioner,  a  member  of  the  Railroad 
Administration,  a  member  of  the  United  States  Shipping  Board  and 
Emergency  Fleet  Corporation,  a  member  of  the  War  Trade  Board,  a 
member  of  the  Food  Administration,  a  member  of  the  Fuel  Adminis- 
tration, a  representative  of  the  War  Department,  and  a  member  of  the 
Allied  Purchasing  Commission.  This  Board  has  adopted  for  .the. 
purpose  of  guiding  all  governmental  agencies  in  the  production, 

1  An  editorial . 


WAR-TIME  REGULATION  OF  TRADE  AND  INDUSTRY       297 

supply,  and  distribution  of  raw  materials,  finished  products,  electrical 
energy,  fuel,  and  transportation,  the  following  general  classification  of 
industry  for  the  purposes  of  priority  treatment. 

Ships — Including  destroyers  and  submarine  chasers. 

Aircraft. 

Munitions,    Military    and    Naval    Supplies    and    Operations — Including 

building  construction  for  government  needs  and  equipment  for  same. 
Fuel — For  domestic  consumption,  and  for  manufacturing  necessities 

named  herein. 
Food  and  Collateral  Industries — (a)  Foodstuffs  for  human  consumption, 

and  plants  handling  same. 

(b)  Feeding  stuffs  for  domestic  fowls  and  animals,  and  plants  handling 
same. 

(c)  All  tools,  utensils,  implements,  machinery,  and  equipment  required 
for  production,  harvesting  and  distribution,  milling,  preparing,  canning 
and  refining  foods  and  feeds  such  as  seeds  of  foods  and  feeds,  binder 
twine,  etc. 

(d)  Products  of  collateral  industries,  such  as  fertilizer,  fertilizer  ingre- 
dients, insecticides  and  fungicides,  containers  for  foods  and  feeds, 
collateral  products. 

(e)  Materials  and  equipment  for  preservation  of  foods  and  feeds,  such 
as  ammonia  and  other  refrigeration  supplies,  including  ice. 

Clothing — For  civilian  population. 

Railroad — Or  other  necessary  transportation  equipment,  including  water 
transportation. 

Public  Utilities — Serving  war  industries,  Army,  Navy,  and  civilian  popu- 
lation. 

Included  with  the  foregoing  list  are  all  necessary  raw  materials, 
partially  manufactured  parts,  and  supplies  for  completion  of  these 
products. 

This  list  of  war  industries  is  to  be  given  as  nearly  as  possible  100 
per  cent  of  their  requirements.  This,  the  Board  points  out,  "will 
in  some  cases  practically  exhaust  and  in  other  cases  substantially 
reduce  the  available  supply,  resulting  in  an  acute  shortage  of  certain 
basic  raw  materials  and  products." 

RESTRICTION   OF   NEW   BUILDING   OPERATIONS 

The  War  Industries  Board,  with  a  view  to  promoting  the  successful 
prosecution  of  the  war,  states  that — 

all  new  undertakings  not  essential  to,  and  not  contributing  either  directly 
or  indirectly  toward  winning  the  war,  which  involve  the  utilization  of  labor, 


298  ECONOMICS  OF  WAR 

material,  and  capital  required  in  the  production,  supply,  or  distribution  of 
direct  or  indirect  war  needs,  will  be  discouraged,  notwithstanding  they  may 
be  of  local  importance  and  of  a  character  which  should  in  normal  times  meet 
with  every  encouragement;  and  that  in  fairness  to  those  interested  therein 
notice  is  hereby  given  that  this  Board  will  withhold  from  such  projects 
priority  assistance,  without  which  new  construction  of  the  character  men- 
tioned will  frequently  be  found  impracticable,  and  that  this  notice  shall  be 
given  wide  publicity,  that  all  parties  interested  in  such  undertakings  may 
be  fully  apprised  of  the  difficulties  and  delays  to  which  they  will  be  subjected 
and  embark  upon  them  at  their  peril. 

This  applies  to  industrial  plants  which  cannot  be  utilized  in  the 
prosecution  of  the  war  and  to  the  construction  by  states,  counties, 
cities,  and  towns  of  public  buildings  and  other  improvements  which 
will  not  contribute  towards  winning  the  war. 

A  convenient  means  of  preventing  new  building  operations  that 
are  not  essential  to  the  prosecution  of  the  war  is  found  in  the  exercise 
of  priorities  in  the  issue  of  securities.  A  Capital  Issues  Committee 
of  the  War  Finance  Corporation  now  passes  upon  applications  with 
respect  to  proposed  issues  of  bonds,  notes,  certificates  of  indebtedness, 
and  other  securities,  state,  county,  municipal,  or  corporate.  (Detailed 
instructions  to  applicants  with  respect  to  such  issues  may  be  found 
in  the  Federal  Reserve  Bulletin  [March,  1918],  pp.  168-71.) 

FUEL  AND  TRANSPORTATION   PRIORITIES 

The  coal  supply,  not  only  in  the  United  States,  but  throughout 
the  world,  will  not  prove  adequate  during  the  coming  year  to  meet  the 
needs  of  both  war  industries  and  non-war  industries.  The  Fuel 
Administration  has  therefore  arranged  the  following  list  of  preferred 
industries  :J 

Aircraft — Plants  engaged  exclusively  in  manufacturing  aircraft  or  supplies 

and  equipment  therefor. 
Ammunition — Plants  engaged  in  the  manufacture  of  ammunition  for  the 

United  States  government  and  the  Allies. 
Arms  (small) — Plants  engaged  in  manufacturing  small  arms  for  the  United 

States  government  and  the  Allies. 
Army  and  Navy  cantonments  and  camps. 

Chemicals — Plants  engaged  exclusively  in  manufacturing  chemicals. 
Coke  plants. 
Domestic  consumers. 

1  Trade  Publication  No.  i,  April,  1918,  U.S.  Fuel  Administration,  Educational 
Division. 


WAR-TIME  REGULATION  OF  TRADE  AND  INDUSTRY       299 

Electrical  equipment — Plants  manufacturing  same. 

Electrodes — Plants  producing  electrodes. 

Explosives — Plants  manufacturing  explosives. 

Farm  implements — Manufacturers  exclusively  of  agricultural  implements 

and  farm-operating  equipment. 
Feed — Plants  producing  feed. 
Ferro-alloys — Plants  producing  same. 
Fertilizers^-Manufacturers  of  fertilizers. 
Fire  brick — Plants  producing  same  exclusively. 
Food — Plants  manufacturing,  milling,  preparing,  refining,  preserving,  and 

wholesaling  food  for  human  consumption. 

Food  containers — Manufacturers  of  tin  and  glass  containers  and  manu- 
facturers exclusively  of  other  food  containers. 
Gas — Gas-producing  plants. 
Guns  (large) — Plants  manufacturing  same. 
Hemp,  jute,  and  cotton  bags — Plants  manufacturing  exclusively  hemp, 

jute,  and  cotton  bags. 

Insecticides — Manufacturers  exclusively  of  insecticides  and  fungicides. 
Iron  and  steel — Blast  furnaces  and  foundries. 
Laundries. 

Machine  tools — Plants  manufacturing  machine  tools. 
Mines. 
Mines — Plants  engaged  exclusively  in  manufacturing  mining  tools  and 

equipment. 
Newspapers  and  periodicals — Plants  printing  and  publishing  exclusively 

newspapers  and  periodicals. 

Oil — Refineries  of  both  mineral  and  vegetable  oils. 
Oil  production— Plants  manufacturing  exclusively  oil-well  equipment. 
Public  institutions  and  buildings. 
Public  utilities. 
Railways — Plants  manufacturing  locomotives,  freight  cars  and  rails,  and 

other  plants  engaged  exclusively  in  manufacture  of  railway  supplies. 
Refrigeration — Refrigeration  for  food  and  exclusive  ice-producing  plants. 
Seeds — Producers  or  wholesalers  of  seeds  (except  flower  seeds). 
Ships  (bunker  coal) — Not  including  pleasure  craft. 
Ships — Plants  engaged  exclusively  in  building  ships  (not  including  pleasure 

craft)  or  in  manufacturing  exclusively  supplies  and  equipment  therefor. 
Soap — Manufacturers  of  soap. 
Steel — Steel  plants  and  rolling  mills. 
Tanners — Tanning  plants,  save  for  patent  leather. 
Tanning  extracts — Plants  manufacturing  tanning  extracts. 
Tin  plate — Manufacturers  of  tin  plate. 
Twine  (binder)  and  rope — Plants  producing  exclusively  binder  twine  and 

rope. 


300  ECONOMICS  OF  WAR 

Wire  rope  and  rope  wire — Manufacturers  of  same. 
Automobile  plants  are  not  in  the  list. 

It  should  be  noted  that  all  industries  not  included  in  the  list  above 
will  have  to  wait  for  both  fuel  and  transportation  until  the  require- 
ments of  the  above  have  been  fully  met.  This  may  mean  in  many 
cases  waiting  indefinitely. 

At  the  same  time  the  Fuel  Administration  has  issued  a  fuel-oil 
order  with  the  explanation  that  "the  shortage  in  the  amount  of  fuel 
oil  which  can  be  delivered  because  of  transportation  conditions  is 
such  that  it  is  clearly  a  wasteful  and  unreasonable  practice  to  deliver 
such  oil  for  uses  which  are  not  intimately  and  directly  connected  with 

the  prosecution  of  the  war The  classes  specified  and  the 

precedence  in  selling,  if  the  'pinch'  comes  in  oil,  is  fixed  as  follows:" 
Railroads,  bunker  fuel,  and  oil  refineries  using  or  making  fuel  oil. 
Export  deliveries  or  shipments  for  the  United  States  Army  or  Navy. 
Export  shipments  for  the  navies  and  other  war  purposes  of  the  Allies. 
.  Hospitals  where  oil  is  now  being  used  as  fuel. 

Public  utilities  and  domestic  consumers  now  using  fuel  oil  (including  gas  oil). 
Shipyards  engaged  in  government  work. 
Navy  yards. 
Arsenals. 

Plants  engaged  in  manufacture,  production,  and  storage  of  food  products. 
Army  and  Navy  cantonments  where  oil  is  now  being  used  as  fuel. 
Industrial  consumers  engaged  in  the  manufacture  of  munitions  and  other 

articles  under  government  orders. 
All  other  classes. 

This  applies  to  the  entire  region  east  of  the  Rocky  Mountains. 

7.    THE  REGIONAL  ORGANIZATION  OF  INDUSf  RY' 

Until  very  recently  it  has  been  necessary  for  manufacturers  who 
desired  to  secure  war  contracts  to  send  a  representative  to  Washington 
to  "drum  up  business."  This  representative  has  had  to  make  the 
weary  round  of  innumerable  purchasing  divisions  of  the  government, 
and  it  has  required  a  man  of  dauntless  courage  to  succeed  in  his 
enterprise.  Under  such  circumstances  it  has  obviously  been  impos- 
sible for  the  small  manufacturer  without  connections  to  secure  gov- 
ernment business.  This  has  been  unfortunate,  not  merely  from  the 
standpoint  of  the  individual  manufacturer,  but  also  from  the  stand- 

1  By  Harold  G.  Moulton.  From  Your  Business  and  War  Business,  a  pamphlet 
distributed  by  the  Union  League  Club  of  Chicago,  July,  1918. 


WAR-TIME  REGULATION  OF  TRADE  AND  INDUSTRY       301 

point  of  the  government;  for  when  the  government  patronizes  only 
the  larger  manufacturers,  and  those  with  established  connections,  it 
inevitably  means  a  congestion  of  manufacturing  enterprise  with  the 
attendant  evils  of  inadequate  housing  and  retarded  production  of  war 
supplies. 

To  remedy  this  situation  and  to  decentralize  the  production  of 
war  supplies  throughout  the  United  States  the  Resources  and  Con- 
version Section  of  the  War  Industries  Board,  under  the  direction  of 
Mr.  Charles  A.  Otis,  has  worked  out  a  plan  whereby  it  is  believed  that 
the  small  manufacturer  will  be  given  an  equal  opportunity  with  the 
large  one  to  obtain  war  business.  The  primary  object  is  to  assemble 
as  quickly  as  possible  detailed  information  concerning  industries  in  all 
parts  of  the  country.  The  official  communication  states  that 

to  accomplish  this  in  the  most  efficient  way  it  has  been  decided  to  divide 
the  country  into  regions  and  organize  them  thoroughly  under  the  leadership 
and  with  the  cooperation  of  the  local  chambers  of  commerce  and  other 
business  men's  organizations. 

It  is  desired  to  enlist  the  aid  of  all  classes  of  industry,  and  to  bring  this 
about  it  is  imperative  that  all  the  industries  of  a  given  region  should  be 
asked  to  participate  whether  they  are  now  members  of- business  organiza- 
tions or  not. 

Under  the  plan  that  has  been  worked  out  for  bringing  the  manu- 
facturing resources  of  the  country  into  more  effective  cooperation  with 
the  government,  the  country  is  to  be  divided  into  twenty  industrial 
regions,  with  the  following  cities  as  centres:  Boston,  Bridgeport, 
New  York,  Philadelphia,  Pittsburgh,  Rochester,  Cleveland,  Detroit, 
Chicago,  Cincinnati,  Baltimore,  Atlanta,  Birmingham,  Kansas  City, 
St.  Louis,  Dallas,  Milwaukee,  St.  Paul,  Seattle,  San  Francisco.  The 
following  plan  for  effecting  the  organization  is  suggested  by  the  officials 
in  charge: 

1.  Organize  through  Chambers  of  Commerce  and  other  business  asso- 
ciations Industrial  Committees  with  the  principal  industrial  center  as 
headquarters  and  such  sub-divisions  as  are  recommended  by  the  business 
association  of  each  district. 

2.  Develop  such  organization  in  various  classes  of  industry  as  well  as 
in  area  for  greatest  convenience,  to  get  information  of  all  classes  of  products 
in  and  between  regions. 

3.  Having  established  such  region  and  sub-region,  through  the  coopera- 
tion of  the  best  business  men  in  each  district  have  a  survey  of  the  industries 
recorded  in  the  hands  of  the  section  in  Washington  of  the  War  Industries 


302  ECONOMICS  OF  WAR 

Board  for  information  to  the  various  procurement  sections  of  the  govern- 
ment. 

4.  Each  region  may  have  in  Washington  a  representative  who  through 
the  Resources  and  Conversion  Section  of  the  War  Industries  Board  may 
keep  in  direct  contact  with  his  region  and  be  available  to  the  governmental 
procurement  divisions  or  the  War  Industries  Board  for  prompt  action  in 
giving  data  from  his  region. 

The  detailed  form  of  organization  suggested  for  each  region 
(subject,  of  course,  to  modifications  as  desired  to  meet  the  needs  of 
any  region)  is  known  as  the  Cleveland  Plan,  which  has  been  for  some 
time  in  operation.  Under  this  plan  each  region  is  divided  into  eight 
sub-regions,  an  important  industrial  city  in  each  sub-region  being 
designated  as  a  center.  Each  sub-region  has  a  local  War  Industries 
Commission  which  coordinates  all  industry  within  its  territory. 
Within  each  sub-region  manufacturing  is  divided  into  the  following 
classes:  castings;  forgings  and  stampings;  machinery  and  machine 
products;  rubber  products;  clay  products;  chemicals,  oils,  and  paints ; 
textiles  and  clothing;  wood  and  leather;  engineering;  automotive. 
Other  classifications  may  of  course  be  added  for  important  lines  of 
industry. 

The  administrative  organization  is  as  follows:  In  each  sub-region 
each  line  of  industry  is  placed  in  charge  of  a  chairman  to  be  chosen 
by  the  industry.  The  chairmen  of  the  various  industries  together 
constitute  an  executive  committee  for  the  sub-region,  which  is  the 
governing  body  within  the  sub-region. 

The  governing  body  of  the  region  as  a  whole  is  an  executive  com- 
mittee composed  of  the  chairmen  of  the  executive  committees  of  the 
eight  sub-regions. 

Coming  back  to  the  sub-region,  the  chairman  of  each  industry 
makes  his  own  sub-classifications.  For  instance,  under  castings  we 
may  have  aluminum  and  brass  castings,  gray-iron  castings,  malleable 
castings,  and  steel  castings.  A  sub-chairman  is  placed  in  charge  of 
each  sub-classification.  If  the  sub-classification  is  a  large  one,  each 
sub-chairman  may  have  a  committee  large  enough  to  enable  him  to 
report  promptly  and  in  detail  the  capacity  available  in  all  plants  in  his 
sub-classification . 

With  this  organization  in  working  order,  detailed  information  of 
the  capacity  of  the  plants  in  each  industry  to  produce  materials  will 
be  made  available  to  the  chairman  of  the  industry,  and  by  him  be 
communicated  to  the  executive  committee  of  the  region.  -  This 


WAR-TIME  REGULATION  OF  TRADE  AND  INDUSTRY       303 

regional  committee  in  turn  will  make  this  information  available  to  the 
Resources  and  Conversion  Section  of  the  War  Industries  Board  in 
Washington,  and  through  this  section  to  the  various  supply  and  pur- 
chasing officers  of  the  government.  Similarly,  when  government 
requirements  are  made  known  to  the  Resources  and  Conversion 
Section  of  the  War  Industries  Board,  telegraphic  communication  from 
this  section  to  the  chairman  of  each  region  will  promptly  set  the 
machinery  in  motion  to  secure  the  production  of  the  necessary  sup- 
plies in  minimum  time  and  with  maximum  efficiency.  There  will  no 
longer  be  any  necessity  for  individual  manufacturers  to  go  to  Wash- 
ington to  secure  war  contracts.  The  distribution  of  the  production 
of  munitions  and  supplies  within  each  region  will  be  accomplished 
through  the  representatives  whom  the  industries  themselves  have 
chosen. 

GENERAL  ADVANTAGES  OF  THE  PLAN 

It  will  be  seen  at  a  glance  that  this  method  of  enlisting  the  pro- 
ductive capacity  of  the  nation  in  the  service  of  the  government  is 
much  superior  to  the  haphazard  method  that  has  characterized  past 
months: 

1.  It  eliminates  "pull"  and  established  connections  as  a  factor 
in  the  awarding  of  contracts. 

2.  It  eliminates  the  necessity  of  expensive  and  time-consuming 
trips  to  Washington  in  the  endeavor  to  secure  war  business. 

3.  It  saves  the  time  of  the  government  procurement  officials, 
hitherto  largely  wasted  in  conferences  with  individual  business  men. 

4.  It  provides  for  the  scientific  apportionment  of  the  work  to  be 
done  to  the  localities  and  plants  best  adapted  to  the  doing  of  the  work. 

5.  It  enables  individual  laborers  to  remain  in  their  own  com- 
munities and  in  their  own  homes  and  thus  does  much  to  minimize 
the  difficulties  of  the  housing  situation. 

6.  It  permits  our  existing  industrial  equipment  to  be  turned 
directly  to  war  uses,  thus  saving  the  necessity  of  new  construction 
with  needless  using  up  of  raw  materials,  labor  power,  and  transport 
facilities. 

7.  It  serves  to  disrupt  as  little  as  possible  our  industrial  fabric 
and  thus  to  make  less  difficult  the  task  of  reconstruction  after  the  war. 


VIII 
FOOD  AND  FUEL 

Introduction 

The  problems  of  economic  organization  for  war  with  which  the 
public  is  most  familiar  are  those  of  food  and  fuel.  They  have  made 
their  presence  felt  in  every  business  establishment  and  private  home 
in  the  land.  They  have  brought  home  to  the  people  the  familiar 
economic  fact  of  scarcity.  They  have  given  to  all  a  conviction  that 
in  some  vague  and  indefinite  way  the  organization  and  use  of  supplies 
of  bread  and  meat  and  coal  and  power  are  connected  with  the  winning 
of  the  war.  Yet,  in  general,  popular  conceptions  of  these  problems 
run  in  terms  of  their  relation  to  the  management  of  business  or  the 
affairs  of  the  household  rather  than  of  the  larger  economic  strategy 
of  which  they  are  part. 

The  discussions  which  make  up  this  chapter  contain  nothing  new 
in  outlook  or  general  statement.  Their  main  interest  is  to  translate 
the  principles  already  discussed  into  terms  of  the  everyday  problems 
of  war  with  which  people  are  most  familiar.  It  is  to  indicate  the 
relationship  of  the  organization  of  the  distribution  and  use  of  a  limited 
supply  of  an  essential  commodity  to  the  general  problem  of  industrial 
mobilization. 

The  selections  below  are  intended  to  serve  a  number  of  secondary 
purposes.  They  indicate  the  complexity  and  ramifications  of  the 
administrative  problems  which  the  war  has  raised,  their  interdepend- 
ence, their  inclusion  of  such  seemingly  alien  things  as  social  traditions 
and  personal  habits,  and  the  combination  of  circumstances  upon 
which  their  solutions  rest.  They  disclose  the  great  variety  of  dangers 
which  lie  in  wait  for  the  administrator  who  attempts  the  regulation  of 
production  or  the  control  of  consumption,  and  indicate  the  intelligent 
approach,  careful  analysis,  and  technical  knowledge  necessary  to  the 
successful  accomplishment  of  such  tasks.  They  point  to  the  folly  of 
attempting  to  impute  responsibility  to  a  single  individual  for  the 
success  or  failure  of  a  policy  which  depends  upon  so  wide  a  variety  of 
conditions.  And,  last  but  most  important  of  all,  they  present  material 
which  tends  to  enlarge  and  clarify  one's  conception  of  the  nature  of 
the  organization  of  industrial  society. 

304 


FOOD  AND  FUEL  305 

To  these  several  ends  a  wide  variety  of  materials  is  presented 
below.  "Where  Hunger  Pinches"  (Section  XXVIII)  indicates  the  need 
for  increased  control  and  the  difficulties  of  enforcing  it  in  a  country 
where  food  is  really  short  as  against  a  country  like  ours  where  the 
exactions  of  the  food  administration  have  imposed  no  real  burden. 
The  statement  of  "The  Requisites  of  a  National  Food  Policy" 
(Section  XXIX)  serves  both  to  illustrate  the  application  of  the 
principles  of  industrial  mobilization  to  a  particular  problem  and  to 
show  that  the  national  is  but  a  part  of  a  world-wide  organization 
of  food.  The  materials  upon  "The  World's  Coal  Situation"  (Section 

XXX)  perform  the  same  task  in  terms  of  another  essential  commodity. 
The  discussion  of  "Coal  Problems  of  the  United  States"  (Section 

XXXI)  indicate  some  of  the  more  important  steps  in  the  gradual 
solution  of  the  fuel  problem.    The  last  two  readings,  concerned  with 
"Competition  versus  Efficiency  in  Mining  Coal"  and  "Coal  and 
Electricity  in  Double  Harness,"  illustrate  the  complications  given  to 
the  problem  by  such  seemingly  foreign  elements  as  the  traditions  of 
the  industry  and  the  current  status  of  technology. 

XXVIII.     Where  Hunger  Pinches1 
i.    THE  SCARCITY  OF  FISH  IN  BERLIN2 

•Like  so  many  other  foodstuffs,  fish  has  also  disappeared  from  the 
Greater  Berlin  market  during  the  war.  There  is  a  pressing  need, 
particularly  in  winter,  when,  besides  the  ever-scanty  meat  ration, 
experience  has  proved  that  other  foodstuffs  are  also  not  very  abun- 
dantly distributed  in  the  capital,  that  the  population  should  receive 
larger  supplies  of  fish  as  compensation.  The  imperial  commissioner 
for  the  fish  supply  has  given  our  representative  the  following  informa- 
tion: 

Up  to  about  a  week  or  fortnight  ago  relatively  large  supplies  of 
sea  fish  reached  Berlin.  Now,  however,  heavy  storms  have  set  in 
in  the  North  and  Baltic  seas,  rendering  fishing  extremely  difficult  and, 
in  parts,  stopping  it  altogether.  The  prospects  for  future  imports  of 

1  ED.  NOTE. — The  excerpts  which  make  up  this  reading  are  compiled  and 
translated  from  German  and  Austrian  newspapers  by  Alfred  Maylander.  They 
are  to  be  found  in  Food  Situation  in  Central  Europe  (1917),  which  is  Bulletin  No.  242 
of  the  United  States  Bureau  of  Labor  Statistics.  The  original  sources  of  the 
excerpts  are  indicated  in  the  bibliographical  footnotes. 

'  From  Berliner  Tageblalt,  evening  edition,  September  n,  1917. 


306  ECONOMICS  OF  WAR 

sea  fish  are  difficult  to  estimate.  The  home  catch,  which,  owing  to 
the  abnormally  cold  winter,  was  rather  small  from  January  to  March, 
increased  quite  considerably  in  the  spring.  The  catches  were  bought 
up  and  distributed  quickly,  but  naturally  were  insufficient  to  cover  the 
great  demand.  At  present  strenuous  efforts  are  being  made  to 
increase  the  fishing  industry  in  order  to  store  up  as  much  as  possible 
for  the  winter,  but  too  great  expectations  must  not  be  indulged  in. 

2.    CONTROL  OF  EGGS  IN  BERLIN1 

The  egg-supply  organization  has  proved  a  great  failure.  Stop- 
pages have  continually  occurred,  and  certain  districts  receive  no  eggs 
at  all,  while  others  have  a  surplus.  This  is  undoubtedly  due  to  faulty 
organization.  A  special  organization,  the  State  Food  Association, 
was  formed  some  time  ago  in  Berlin  for  the  purpose  of  collecting  and 
distributing  eggs.  To  the  great  loss  of  the  community,  however,  the 
greatest  difficulties  have,  from  the  start,  been  placed  in  the  way  of  this 
organization.  The  superior  authorities  showed  so  little  understanding 
of  the  functions  of  an  egg-supply  organization  that,  despite  all  com- 
mercial efforts,  no  success  was  obtained.  All  practical  suggestions  for 
improving  the  prevailing  conditions  were  simply  ignored. 

3.    FOOD  EXCURSIONS 

During  the  past  spring  and  summer  the  food  authorities  received 
numerous  complaints  about  the  increasing  practice  among  the  urban 
population  of  going  out  to  the  rural  districts  to  secure  food  illicitly. 
These  "food  excursions"  were  much  discussed  in  the  daily  press, 
some  papers  expressing  sympathy  for  the  poorer  class  of  excursionists, 
who  should  be  distinguished  from  the  richer  and  merely  selfish 
hoarders. 

In  Berlin  and  the  province  of  Brandenburg  this  injurious  practice 
led  to  a  proclamation  by  the  commanding  general,  which  contained 
the  following  statement:  "Individuals  can  not  be  permitted  to  seek 
to  obtain  in  this  way  an  advantage  over  their  fellow  citizens.  More- 
over, people  now  go  out,  not  merely  to  buy  but  to  steal  food  or  take 
it  forcibly;  they  have  the  effrontery  to  help  themselves  to  standing 
field  and  garden  crops,  often  long  before  these  are  ripe.  The  injury 
to  the  farmers  and  to  our  future  supply  is  obvious.  Robbing  the 
fields  and  damaging  the  crops  is  a  crime  in  war  time,  and  the  strongest 
measures  must  be  taken  against  it." 

1  From  Berliner  Tageblatt,  August  29,  1917. 


FOOD  AND  FUEL  307 

He  therefore  lays  the  authorities  under  an  obligation  to  enforce  a 
preventive  order,  and  states  that  where  it  is  necessary  military  assist- 
ance will  be  available. 

4.    "MASS  FEEDING"  IN  GERMANY 

At  least  for  the  period  of  the  war  "mass  feeding"  seems  to  be 
thoroughly  established  in  Germany.  Of  the  563  communes,  each 
with  10,000  or  more  inhabitants,  and  with  a  total  population  of 
26,700,000,  there  were  only  56,  with  857,000  inhabitants,  without 
mass-feeding  arrangements;  472  communes,  with  24,354,090  inhabit- 
ants, reported  the  existence  of  2,207  such  establishments,  of  which 
1,076  are  general  war  kitchens,  116  middle-class  kitchens,  528  factory 
kitchens,  and  487  kitchens  of  various  kinds.  Although  most  towns 
provided  only  midday  dinners,  most  kitchens  are  arranged  for  at  least 
two  shifts  of  cooks.  The  average  output  of  the  2,207  establishments 
amounted  in  February,  1917,  to  a  daily  production  of  2,528,401  liters 
of  food,  which  allowed  10.4  liters  daily  per  100  inhabitants  of  the 
24,354,000  total  inhabitants  in  question,  as  against  8.8  liters  in 
January.  The  highest  possible  daily  output  would  promise  a  total, 
of  4,208,741  liters,  or  17.8  liters  per  100  inhabitants. 

The  comparative  popularity  of  mass  feeding  is  a  good  index  to 
the  actual  condition  of  the  food  supply.  War  kitchens  are  being 
increasingly  patronized  by  members  of  the  middle  class.  The  number 
of  middle-class  and  officials'  kitchens  and  of  soup  kitchens  in  Berlin 
has  now  almost  reached  a  hundred;  35,000  portions  of  food  and  14,000 
portions  soup  are  served  daily,  and  8,000  portions  of  bone  soup  are 
distributed  to  heavy  workers  and  children.  The  portions  are  generous 
and  a  second  helping  can  be  obtained  at  low  prices. 

5.    THE  FOOD-CARD  SYSTEM1 

Food  tickets  are  issued  in  general  by  three  methods.  In  Berlin 
and  some  other  towns  the  porters  of  the  large  blocks  of  flats  in  which 
almost  everybody  lives  obtain  the  tickets  from  the  authorities  and 
distribute  them  to  the  individual  families.  In  Munich  and  a  decreas- 
ing number  of  towns,  school  children  and  other  voluntary  helpers  take 
the  tickets  round.  The  method  becoming  most  general  is,  however, 
to  compel  each  family  to  fetch  its  tickets  for  itself  from  a  local  office 
on  one  or  more  fixed  dates,  arranged  so  as  to  prevent  an  undue  rush 

1  Adapted  from  the  National  Food  Journal  (London),  November  28,  1917. 


308  ECONOMICS  OF  WAR 

of  applicants.  The  advantage  of  this  method  over  the  others  is  that 
complaints  are  investigated  and  settled  on  the  spot.  The  last  occasion 
on  which  Leipzig  distributed  tickets  by  volunteer  messengers  to  its 
155,000  families  produced  nearly  100,000  complaints.  The  person 
who  fetches  the  tickets  for  a  family  has  to  produce  their  individual 
police  registration  cards  and  sometimes  special  food-ticket  registration 
documents,  and  is  often  requested  to  bring  their  birth  certificates. 
The  issuing  office  keeps  a  card  register  showing  changes  in  the  member- 
ship of  each  family,  all  such  changes  having  to  be  reported  imme- 
diately. Under  the  first  two  methods  of  issuing  tickets  a  receipt 
has  to  be  given  by  the  recipient.  Tickets  are  taken  out  at  intervals 
ranging  from  every  three  months  down  to  every  month  or  less.  The 
more  frequent  the  issue,  the  less  is  the  danger  of  forgery,  as  the 
appearance  of  each  successive  series  of  tickets  can  be  varied.  Hoard- 
ing and  anticipation  of  supplies  are  prevented  by  making  each  ticket 
valid  only  for  a  single  week,  or  fortnight. 

The  original  and  simplest  form  of  German  food  ticket  is  a  card 
with  detachable  coupons,  printed  so  as  to  be  difficult  of  imitation. 
It  now  must  generally  be  signed  by  the  holder;  it  is  never  trans- 
ferable. Other  varieties  used  locally  for  general  or  special  purposes 
are  books  containing  a  page  with  separable  coupons  for  every  article. 
Such  a  book  occasionally  represents  the  rations  for  a  whole  family. 
On  the  whole,  the  use  of  one  card  for  every  article  and  for  every  person 
is  found  most  satisfactory,  while  general  tickets  or  books  are  issued 
with  blank  coupons  to  be  used  in  buying  any  exceptional  supplies 
which  the* local  authority  may  be  able  from  time  to  time  to  provide; 
e.g.,  dried  vegetables  and  farinaceous  foods  are  not  regularly  on  sale, 
but  can  be  bought  at  irregular  intervals  on  specified  coupons  of  the 
general  food  ticket. 

The  comparatively  simple  ticket  system  described  above  worked 
well  in  Germany  for  bread  and  flour  down  to  the  end  of  1915;  but  it 
requires  for  its  successful  operation  the  existence  of  a  considerable 
margin  of  stocks  in  the  retail  shops,  so  that  the  ticket  holder  may  be 
certain  of  being  served  in  some  shop  near  his  home.  The  extreme 
scarcity  of  all  foods,  which  began  to  prevail  in  1916  and  still  continues, 
has  necessitated  the  introduction  of  important  complications;  and, 
speaking  generally,  bread,  flour  (usually),  and  sugar  are  now  the  only 
foods  to  which  the  simple  system  still  applies.  For  meat,  milk,  fats, 
potatoes,  and  other  foods,  especially  those  which  are  only  distributed 
occasionally,  the  purchaser  must  become  the  registered  customer  of  a 


FOOD  AND  FUEL  309 

particular  shop,  and  very  frequently  he  must  place  his  order  a  week 
or  more  in  advance.  The  shop  is  supplied  in  exact  proportion  to  the 
number  of  its  registered  customers  or  of  the  advance  orders  received. 
To  prevent  the  formation  of  food  queues  (waiting  lines),  a  number  is 
assigned  to  every  customer,  and  the  tradesman  announces  in  his 
window  what  numbers  will  be  served  at  particular  hours.  One  hour 
in  the  day  is  reserved  for  persons  who  prove  by  a  certificate  from  their 
employers  or  otherwise  that  they  could  not  attend  when  their  numbers 
were  up.  These  refinements  prevent  the  necessity  for  a  margin;  but 
they  involve  the  issue  of  special  registration  tickets,  complicate 
enormously  the  problem  of  removals,  and  subject  the  public  to  a  very 
great  inconvenience. 

In  conclusion,  one  observation  may  be  made  by  way  of  caution. 
The  ticket  system  is  the  effect,  not  the  cause,  of  the  German  food  crisis. 
If  it  has  to  some  extent  lessened  the  supply  of  food  by  discouraging 
production  and  dislocating  trade,  it  has  undoubtedly  saved  the  nation 
from  early  defeat  in  the  war  by  reducing  consumption  to  a  minimum 
far  below  any  that  voluntary  effort  could  have  secured. 

6.     FOOD  IN  BOHEMIA 

The  food  situation  in  Bohemia,  due  in  the  main  to  inefficient 
organization,  is  very  bad.  The  following  official  memorandum1 
needs  no  comment. 

1.  Potatoes  are  unobtainable. 

2.  The  butter  ration  during  last  year  was  only  120  grams  (4.2  ounces) 
per  household  per  month. 

3.  The  milk  supply  gets  steadily  worse,  both  in  quality  and  quantity. 
On  July  31,  1917,  the  allowance  for  each  individual  was  only  0.06  liter 
(0.06  quart). 

4.  Sugar  supply  is  unsatisfactory  owing  to  the  inefficiency  of  the  Sugar 
Central  Office  in  Vienna  and  transport  difficulties. 

5.  Meat. — The  allowance  of  900  head  of  cattle  which  had  been  promised 
has  been  reduced  to  565. 

6.  Coal. — Greater  Prague  before  the  war  used  320  wagonloads  of  coal 
daily;  only  100  per  day  are  now  available. 

7.  The  results  of  this  are  that  a  great  part  of  the  population  suffers  from 
hunger,  and  that  the  children  suffer  both  physically  and  morally.    The 
number  of  child  beggars  has  gone  up  to  several  thousands.    The  death  rate 

1  Drawn  up  by  a  commission  of  the  Prague  City  Council  (see  Prager  Tageblalt, 
September  n,  1917). 


310  ECONOMICS  OF  WAR 

among  the  general  population  increases  daily.    Diarrhea  is  spreading  at  an 
alarming  rate  in  Greater  Prague. 

7.     THE  "KIT-BAG"  TRADE1 

We  are  officially  informed  that  numerous  persons,  to  the  detriment 
of  the  community,  unlawfully  obtain  food  controlled  by  the  state 
(particularly  flour,  pulse,  potatoes,  eggs,  butter,  milk,  fat,  sugar,  and 
coffee),  in  addition  to  the  rations  fixed  by  the  Food  Office,  and  that 
in  a  markedly  increasing  degree  the  authorities  are  obliged  to  order  the 
examination  of  baggage  (boxes,  baskets,  bags,  and  kit  bags)  of 
travelers  and  pedestrians.  This  examination  will  be  carried  out  by 
the  police  at  the  stations  in  the  neighborhood  of  Vienna,  by  the 
revenue  guard  at  the  boundary  customs  offices,  and  by  the  gendarmery 
in  the  country.  Food  carried  contrary  to  prohibition  will  be  taken 
away  in  every  case  and  handed  over  to  hospitals,  cooperative  kitchens, 
and  similar  public- welfare  institutions.  People  are  therefore  warned 
not  to  render  themselves  liable  to  accusations  of  smuggling  of  this 
kind,  as  in  addition  to  a  considerable  fine  or  imprisonment  they  may 
expect  the  confiscation  of  the  food  in  question. 

Our  government,  which  has  certainly  not  been  lacking  in  ordi- 
nances, has  just  brought  out  another,  the  "kit-bag"  ordinance,  which 
has  aroused  the  greatest  bitterness,  and  indeed  despair,  in  the  whole 
population  of  Vienna.  With  unparalleled  lack  of  consideration  large 
and  small  bags  belonging  to  incoming  travelers  are  examined,  not 
only  in  Vienna,  but  also  during  the  journey,  and  small  quantities  of 
food,  as,  for  instance  10  eggs  or  a  bottle  of  milk,  are  confiscated.  In 
Bohemia  large  quantities  of  flour  are  sold  by  small  millers  without 
regard  to  state  control,  and  without  ration  tickets  or  cards,  in  excess 
of  the  maximum  price;  there  are  no  officials  to  interfere.  Here  in 
Vienna  articles  are  taken  away  from  poor  women,  who,  through 
former  connections  in  the  country,  manage  to  pick  up  here  and 
there  small  quantities  for  their  children,  and  these  women  leave  the 
stations  weeping  and  in  despair.  I  appeal  to  the  government,  as  I  did 
recently  in  the  municipal  council,  not  to  proceed  with  such  petty, 
irritating  methods,  which  only  calculate  to  disturb  and  embitter  the 
population. 

1  The  first  of  the  paragraphs  quoted  is  from  the  morning  edition  of  the  Arbeiler 
Zetiung,  of  Vienna,  October  7,  1917;  the  second,  from  the  morning  edition  of 
Die  Zeit,  of  Vienna,  for  October  17,  1917. 


FOOD  AND  FUEL  311 

8.    THUS  FARES  THE  TURK1 

We  left  Constantinople  because  it  was  absolutely  impossible  for  us 
to  live  there  any  longer.  You  know  how  difficult  it  is  to  procure 
certain  necessaries  even  in  Vienna  and  Budapest;  but  we  felt  a  sense 
of  relief  when  we  passed  from  Turkey  into  Austria.  Austria  lacks 
many  things,  but  Turkey  lacks  everything.  When  it  is  reported  that 
the  Viennese  are  dying  of  hunger,  it  may  be  taken  as  a  form  of  speech, 
but  in  Constantinople  this  is  literally  true. 

The  food-card  system  has  produced  the  most  pitiable  results.  How 
can  the  population  be  rationed  when  there  is  no  census  ?  How  can  a 
Turkish  functionary  be  induced  to  keep  his  books  in  order  and  remain 
incorruptible?  Besides,  the  government  depots  are  for  the  greater 
part  of  the  time  empty,  though  speculators  are  piling  up  foodstuffs 
which  frequently  find  their  way  to  Germany.  The  word  baksheesh 
(" graft")  has  become  more  than  ever  the  essential  word  in  Turkish. 

For  many  weeks  bread  in  Constantinople  smelled  of  petroleum. 
But  to  people  dying  from  hunger  nothing  is  uneatable.  Meat,  even 
horse  meat  and  goat  meat,  is  a  luxury  reserved  for  the  rich.  As  for 
the  Bosphorus  fisheries,  they  were  abandoned  a  long  time  ago,  owing 
to  the  danger  from  mines  and  to  the  fact  that  all  kinds  of  boats  have 
been  requisitioned.  To  a  real  Turk  black  coffee  is  as  necessary  as 
bread  and  meat.  But  a  kilogram  of  sugar  costs  14  francs  ($i .  23  per 
pound)  and  coffee  15  francs  ($i  .32  per  pound).  Last  July  thousands 
of  Turkish  women  pillaged  the  shops  of  Galata  and  Pera.  In  con- 
sequence of  this  the  Turkish  government  requisitioned  from  merchants 
rice,  potatoes,  and  sugar,  and  offered  these  articles  for  sale  at  pre-war 
prices,  but  only  to  Turkish  women.  This  period  of  plenty  lasted 
a  fortnight,  and  the  Turkish  women  were  somewhat  calmed;  as  for 
the  non-Mussulmans,  they  continued  tightening  their  belts. 

XXIX.    The  Requisites  of  a  National  Food  Policy2 

I.   THE  NATURE  OF  THE  PROBLEM 

The  food  problem  has  its  place  as  a  part  of  the  larger  program  of 
adjusting  the  industrial  system  to  the  demands  of  war.  In  the 
various  aspects  of  its  readjustment  of  consumption,  production,  and 

1  From  a  letter  of  a  "neutral"  recently  arrived  in  Switzerland,  published  in 
the  Messagcr  d'Athenes,  of  Athens,  July  25,  1917. 

1  By  Walton  H.  Hamilton.  Adapted  from  "The  Requisites  of  a  National 
Food  Policy,"  Journal  of  Political  Economy,  XXVI  (June,  1918),  612-37. 


312  ECONOMICS  OF  WAR 

distribution  of  food,  it  affects  profoundly  the  interests  and  the 
efficiency  of  the  people  at  home  and  the  soldiers  at  the  front.  The 
amount  of  food  which  must  be  produced  depends  upon  the  triple 
demand  of  the  people  at  home,  the  civilian  population  of  our  Allies, 
and  the  forces  in  the  field.  Its  distribution  involves  numerous  and 
baffling  choice  between  conflicting  interests.  Its  consumption 
requires  the  scrapping  of  the  personal  habits  of  a  lifetime  and  the 
substitution  therefor  of  others  formed  in  the  light  of  military  necessity. 
The  character  of  the  program  depends  upon  the  duration  of  the 
unusual  food  conditions  which  have  come  in  the  wake  of  war.  It  is 
complicated  by  the  varied  fortunes  which  four  years  of  war  have 
brought  to  our  Allies.  It  is  affected  by  dominant  tendencies  imposed 
upon  the  industrial  system  which  the  signing  of  a  treaty  of  peace 
cannot  soon  remove.  Because  of  its  intimate  association  with  the 
larger  problem  of  supplies  and  its  dependence  upon  peculiar  circum- 
stance, a  statement  of  the  requisites  of  a  food  program  must  wait  upon 
an  enumeration  of  the  antecedents  to  which  it  must  conform.  There- 
fore it  seems  best,  in  the  pages  which  immediately  follow,  to  consider: 
(i)  the  situation  in  Germany  with  a  view  to  the  testimony  which  it 
gives  upon  the  duration  of  the  current  food  situation;  (2)  the  peculiar 
food  needs  of  our  principal  Allies,  Great  Britain  and  France,  and  of 
the  neutral  nations  of  Europe;  (3)  the  tendencies  affecting  the 
production  of  food  which  are  accompaniments  of  war;  and  (4}  the 
peculiar  requirements  laid  upon  this  country.  In  view  of  these  it 
will  be  possible  to  outline,  not  in  any  adequate  fashion,  but  at  least 
in  its  main  aspects,  a  food  policy  for  the  current  emergency. 

II.      THE   FOOD   SITUATION   IN   GERMANY 

In  some  respects  Germany's  food  situation  is  better,  in  some 
respects  worse,  than  that  of  the  other  European  belligerents.  It  has 
the  advantage  of  not  losing  sight  of  the  ideal  of  agricultural  self- 
sufficiency  in  the  four  decades  immediately  preceding  the  war  and  of 
quickly  giving  its  attention  to  the  serious  defects  in  the  organization 
of  food  revealed  in  the  earlier  months  of  the  war.  Evidence  of 
attention  to  this  problem  is  revealed  in  the  statistics  of  agricultural 
progress  between  1887  and  1913.  During  this  period  population 
increased  from  48,000,000  to  66,000,000,  or  38  per  cent.  Yet  from 
1887  to  1912  the  supply  of  vegetable  foods  increased  everr  more 
rapidly.  The  production  of  rye  increased  97  per  cent,  of  wheat  54 
per  cent,  of  potatoes  72  per  cent,  of  sugar  251  per  cent,  and  of  other  food 


FOOD  AND  FUEL  313 

articles  from  44  to  1 14  per  cent.  At  the  beginning  of  the  war  Germany 
was  producing  nearly  all  the  grain,  potatoes,  and  sugar  consumed  in 
the  country.  In  respect  to  meats  the  situation  was  by  no  means  so 
favorable,  only  one-fourth  of  the  beef,  one-tenth  of  the  pork,  and 
one-twentieth  of  the  mutton  consumed  being  of  domestic  production. 
We  have  little  direct  evidence  upon  the  increase  of  production — or 
more  likely  the  decrease — since  the  beginning  of  the  war,  though 
there  is  an  abundance  of  indirect  evidence  of  all  degrees  of  reputability. 
This  indicates  that  despite  the  use  of  the  labor  of  prisoners  and  an 
attempt  to  use  food  resources  to  produce  only  commodities  of  the 
highest  food  value  conditions  have  been  fluctuating  from  bad  to  worse, 
but  with  a  steady  drift  toward  worse.  The  best  evidence  seems  to 
indicate  that  Germany  has  at  best  only  about  70  per  cent  of  the 
vegetable  food  and  certainly  not  more  than  40  per  cent  of  the  animal 
food  regarded  as  necessary  in  time  of  peace.  This  shortage  is  impor- 
tant, however,  more  as  evidence  of  the  large  part  of  the  population 
below  the  subsistence  line  than  of  the  success  of  a  policy  of  attrition 
in  bringing  Germany  to  terms. 

The  greatest  promise  for  Germany  is  the  lands  in  the  East  which 
either  have  been  annexed  or  have  been  made  accessible  by  the  collapse 
of  Russia.  The  consensus  of  opinion  among  those  who  know  the 
economic  East  seems  to  be  that  these  lands  will  be  of  little  avail  this 
year.  Whether  they  can  be  made  to  furnish  a  large  food  supply  in 
1919  or  later  depends  largely  upon  the  ability  of  the  German  govern- 
ment to  organize  the  country  for  the  furtherance  of  its  own  purposes. 

On  the  whole,  the  outstanding  features  of  the  German  situation, 
so  far  asjihey  affect  the  food  problem,  are  two  in  number.  The  first 
is  that,  in  view  or  German  discipline,  there  is  little  to  expect  from  a 
policy  of  attrition.  The  policy  of  the  Allies  may  force  an  ever  larger 
part  of  the  population  beyond  the  minimum  necessary  to  keep  health 
in  the  body  for  physical  toil,  but  it  is  not  likely  to  starve  the  popula- 
tion into  surrender.  If  the  war  becomes  an  involuntary  hunger 
strike,  Germany's  powers  of  endurance  are  likely  to  exceed  those  of 
any  Western  nation.  The  German  armies  may  be  kept  back,  the  Ger- 
man government  may  be  driven  into  bankruptcy,  the  German  morale 
may  be  broken,  a  victory  over  German  arms  may  be  achieved,  but  it  is 
safe  to  say  that  economic  inability  to  fight  is  not  likely  to  be  a  cause 
of  German  defeat.  So  long  as  the  losses  in  men  do  not  greatly  exceed 
the  numbers  added  to  the  army  by  incoming  classes,  and  so  long  as 
the  industrial  system  is  arranged  to  supply  a  large  number  of  men  for 


314  ECONOMICS  OF  WAR 

fighting  and  materials  for  them  to  fight  with,  the  German  government 
may,  if  it  wills,  keep  up  the  struggle.  The  second  important  fact  is 
that  no  matter  how  soon  peace  arrives  a  serious  food  problem  will 
remain  in  Germany  for  some  years  to  come.  The  production  is  low 
and  disorganized,  the  personnel  on  the  farms  is  far  below  normal,  both 
in  numbers  and  in  ability,  and  for  many  groups  the  standards  have 
been  driven  far  below  what  is  necessary  for  efficiency.  Both  of  these 
facts  point  to  the  necessity  of  a  food  program  which  looks  farther  ahead 
than  a  few  months — one  that  looks  even  to  the  problems  of  the  pro- 
duction and  distribution  of  food  a  decade  after  peace. 

III.      THE    FOOD    PROBLEM    IN    ALLIED    AND    NEUTRAL    COUNTRIES 

At  the  beginning  of  the  war  France  was,  as  it  had  been  for  some 
time,  a  country  of  small  farms.  No  less  than  45  per  cent  of  the 
population  belonged  to  the  agricultural  class.  On  the  eve  of  the 
present  conflict  France  was  producing  approximately  86  per  cent 
of  the  cereals  consumed  and  about  85  per  cent  of  the  meat 
supply. 

This  favorable  situation  has  been  radically  changed  by  the  war. 
In  the  first  place,  the  large  percentage  of  the  population  engaged  in 
agriculture  has  caused  the  draft  of  fighting  men  to  make  larger  drains 
upon  agriculture  with  greater  decreases  in  efficiency  than  in  any 
belligerent  country.  In  the  second  place,  nitrates  for  fertilizer, 
which  usually  come  from  Chile,  have  been  very  hard  or  almost 
impossible  to  get.  In  the  third  place,  capital  has  not  been  available 
for  improvements,  depreciation  has  gone  forward  at  a  very  rapid  rate, 
and  materials  which  otherwise  would  have  gone  into  farm  machinery 
have  been  diverted  to  war  uses.  In  the  fourth  place,  a  very  consid- 
erable amount  of  fertile  soil  has  been  usurped  for  military  pur- 
poses and  an  even  larger  amount  has  fallen  into  the  hands  of  the 
Germans. 

France  has  of  course  resorted  to  various  devices  to  overcome  these 
tendencies  to  agricultural  decline.  The  aged  and  the  very  young 
alike  have  been  put  in  the  fields;  the  labor  of  men  back  from  the 
front,  of  prisoners,  and  of  Chinese  coolies  has  all  been  used;  the 
production  of  certain  products  has  been  subsidized;  and  a  rigid 
system  of  agricultural  supervision  by  prefects  has  been  established. 
But  in  spite  of  all  this  the  supply  of  food  has  diminished  and  is  still 
diminishing.  The  most  reliable  computations  indicate  that  nearly,  if 
not  fully,  40  per  cent  of  the  agricultural  area  has  been  lost  to  cultiva- 


FOOD  AND  FUEL  315 

tion  and  that  the  fertility  of  the  most  important  crop-producing 
sections  has  declined  by  from  20  to  30  per  cent.  To  grasp  the  sig- 
nificance of  this  one  must  note  that  if  France  were  today  to  try  to 
maintain  its  consumptive  standards  of  1913  it  would  have  to  import 
60  per  cent  of  its  wheat,  48  per  cent  of  its  rye,  35  per  cent  of  its  oats, 
and  1 5  per  cent  of  its  barley.  This  general  decrease  in  the  consumption 
of  staple  commodities  indicates  the  extent  to  which  standards  of 
consumption  have  been  reduced  and  how  close  a  considerable  part 
of  the  population  is  to  actual  starvation.  Yet  the  most  serious  aspect 
of  the  situation  is  that  the  land  and  its  productive  equipment  are 
deteriorating  from  month  to  month  and  that  the  tendencies  bringing 
about  a  decrease  are  becoming  more  and  more  pronounced.  Peace 
will  leave  France  face  to  face  with  a  serious  food  problem. 

Because  of  its  peculiar  industrial  organization  Great  Britain  is 
very  unlike  France.  Economically  the  British  Isles  are  but  the  cen- 
ter of  a  vast  industrial  system  which  ramifies  to  the  corners  of  the 
earth.  It  performs  a  few  economic  functions  for  a  large  part  of  the 
world,  and  other  parts  of  the  world  perform  many  functions  essential 
to  the  welfare,  and  even  the  lives,  of  the  inhabitants  of  the  islands. 
Most  important  for  our  purpose  England  produces  only  a  very  small 
part  of  its  food  supply.  The  national  food  supply  rests  upon  the 
double  contingency  of  production  in  foreign  countries  and  the  shipping 
.available  for  bringing  the  food  to  British  ports. 

But  the  crux  of  the  problem  is  not  in  production;  it  is  in  the 
shipping  situation.  The  tonnage  available  for  transportation  has  been 
greatly  diminished  by  three  causes.  The  first  is  the  diversion  of 
vessels — how  large  only  those  in  the  secrets  of  the  governments  can 
say — to  war  uses.  The  second  is  the  large  losses  through  destruction 
by  mines  and  submarines,  losses  familiar  to  every  reader  of  the 
newspapers.  The  third  is  a  loss  in  the  number  of  journeys  which  a 
ship  can  take  in  a  given  time,  due  to  circuitous  routing  to  avoid  sub- 
marines. An  attempt  has  been  made  to  meet  the  situation  by  pro- 
hibiting the  importation  of  nonessential  commodities.  *  But  in  view 
of  the  large  number  of  imports  for  war  uses,  imports  unknown  to 
Great  Britain  before  the  war,  the  places  of  the  nonessentials  are  filled 
without  supplying  sufficient  accommodation  to  take  food  from  the 
places  where  it  is  most  plentiful  to  English  ports.  Whatever  rosy 
promises  shipbuilding  may  hold  out,  at  this  writing  (April,  1918)  the 
combined  construction  in  Great  Britain  and  America  is  not  yet  equal 
to  the  losses  <5aused  by  submarines.  In  view  of  this  serious  shortage 


316  ECONOMICS  OF  WAR 

relief  can  be  found  only  by  discontinuing  long  hauls  and  concentrating 
shipping  upon  routes  connecting  Great  Britain  with  the  countries  close 
at  hand. 

Such  concentration  merely  solves  the  immediate  shipping  problem 
in  terms  of  another  problem  of  production.  It  makes  the  food  supplies 
of  South  America,  Australia,  and  India  less  available  than  they  were 
and  throws  an  increased  burden  upon  Canada  and  the  United  States. 
This  burden  becomes  the  heavier  when  it  is  realized  that  the  war  has 
cut  off  England  entirely  from  some  of  its  important  sources  of  supply. 
There  is  little  likelihood  that  ships  will  be  available,  before  the  war  is 
over,  in  sufficient  number  to  allow  a  resumption  of  the  old  routes  of 
trade  and  a  tapping  of  the  old  sources  of  supply.  On  the  contrary 
there  is  every  reason  for  believing  that  Great  Britain  will  have 
to  depend  upon  the  nearer  sources  oS  supply,  particularly  upon 
Canada  and  the  United  States,  for  many  years  after  the  coming  of 
peace. 

What  is  true  of  the  seriousness  of  the  food  situation  in  France 
•and  Great  Britain  is  true,  in  their  several  degrees,  of  the  smaller 
belligerent  countries,  of  their  neutral  neighbors,  and  even  of  non- 
participating  nations  far  removed  from  the  scene  of  combat.  The 
great  food-producing  area  is  the  northern  temperate  zone,  the  inhabit- 
ants of  a  large  part  of  which  are  engaged  in  the  present  struggle. 
The  southern  temperate  zone  is  of  secondary  importance.  The 
arctic  zones  produce  only  enough  for  their  indigenous  populations, 
and  the  tropics  do  not  yet  produce  enough  of  the  staples  to  satisfy 
their  own  needs.  Like  Great  Britain  these  countries,  even  though 
they  lie  within  the  great  food-producing  areas,  are  not  self-sufficient. 
Italy  and  Spain,  despite  great  home  production,  are  large  importers 
of  grain,  and  Holland,  Denmark,  Norway,  Sweden,  and  Switzerland 
are  quite  dependent  upon  imports. 

It  is  characteristic  of  the  war  that  the  great  dearth  in  the  good 
things  of  life  which  the  diversion  of  labor,  materials,  and  land  to  other 
uses  has  caused  has  afflicted  neutral  as  well  as  belligerent  nations. 
The  prices  of  the  essential  commodities  are  relatively  steady  the  world 
over.  A  scarcity  in  one  country,  due  to  the  war,  causes  prices  to  rise, 
and  the  higher  prices  attract  goods  from  other  countries  in  which 
prices  are  lower.  The  movement  continues  until  prices  in  the  export- 
ing country  rise  enough  to  make  sales  abroad  unprofitable.  In  this 
way  countries  which  scrupulously  keep  the  peace  have  to  share  the 
dearth  of  nations  at  war.  Conditions  alike  among  the  smaller  warring 


FOOD  AND  FUEL  317 

nations  and  among  the  neutrals  indicate  that  they  have  their  several 
food  problems,  problems  which  are  likely  to  remain  acute  even  after 
peace  is  made. 

IV.   THE  DEPENDENCE  OF  WAR  UPON  FOOD 

It  seems  unnecessary  to  elaborate  at  length  the  abstract  principles 
which  explain  the  decrease  in  food  production  and  the  emergence  of  a 
food  problem  in  the  wake  of  war.  Many  of  the  conditions  responsible 
for  the  problem  are  clearly  apparent  in  the  presentation  of  the  situa- 
tion in  France  and  Great  Britain  given  above.  Others  are  familiar 
to  any  student  of  the  nature  of  modern  warfare.  A  few  words  of 
abstract  statement  must  suffice. 

The  first  of  two  general  groups  of  forces  which  reduce  food  pro- 
duction in  time  of  war  operates  directly  upon  agriculture.  Of  this 
group  the  first  and  most  obvious  is  the  decrease  in  number  and  the 
decline  in  efficiency  of  agricultural  laborers.  Large  numbers  are 
drafted  for  the  army  who  are  habituated  to  farming  just  at  the  ages 
at  which  they  are  most  efficient.  The  old  men,  the  women,  and  the 
children  who  take  their  places  are  their  equals  neither  in  physical 
efficiency  nor  in  their  knowledge  of  agricultural  methods.  To  this 
depletion  jnust  be  added  the  additional  host  who  are  drawn  to  indus- 
trial occupations  by  the  lure  of  high  wages  paid  in  establishments 
engaged  in  war  work. 

The  second  of  this  group  of  forces  directly  lowering  food  pro- 
duction is  the  increasing  difficulty  of  getting  the  materials  which 
successful  farming  requires.  If  fertilizers  are  imported,  war  renders 
them  difficult  or  impossible  to  procure.  If  they  are  of  domestic  origin, 
they  have  to  take  their  precarious  chances  of  transit  upon  a  railway 
system  which  is  being  reorganized  to  accommodate  itself  to  the 
expeditious  movement  of  munitions  of  war.  Farm  machinery,  like 
the  soil,  is  constantly  wearing  out,  and  neglect  and  misuse,  the  inevi- 
table accompaniments  of  management  by  amateurs,  make  the  rate  of 
obsolescence  or  depreciation  a  very  high  one.  New  machinery  to 
take  the  place  of  that  which  has  been  scrapped  is  at  best  expensive, 
because  it  is  made  of  the  very  productive  elements  out  of  which  most 
munitions  of  war  are  made.  Moreover,  the  supply  of  raw  materials 
may  be  so  limited  as  to  allow  little  if  any  of  them  to  find  their  way  into 
agricultural  implements,  or  it  may  be  that  a  shipping  board  puts  them 
far  down  on  the  list  of  priorities  of  imports.  It  is  also  usually  impos- 
sible for  the  farmer  to  pay  cash  for  machinery,  and  borrowed  capital 


318  ECONOMICS  OF  WAR 

is  hard  to  obtain  in  war  time,  owing  to  the  direct  competition  of  the 
government  which  floats  loans  large  enough  to  absorb  nearly  all  the 
free  capital. 

In  the  third  place,  the  high  prices  which  follow  soon  after  the 
declaration  of  war  give  rise  to  great  waste.  Tempted  to  make  profits 
while  the  making  is  good,  the  farmer  is  likely  to  sell  even  the  produce 
which  he  would  ordinarily  keep  for  seed,  trusting  to  buy  in  the  spring 
at  a  lower  price.  More  important  still  is  the  depletion  in  herds,  where 
the  increase  is  slow — a  depletion  that  may  cause  scarcity  for  years  to 
come.  At  present  the  supply  of  animals  needed  for  breeding  purposes 
in  the  United  States  and  Canada,  as  well  as  in  most  European  coun- 
tries, has  been  reduced  almost  to  the  danger-point. 

The  second  general  group  of  forces  reducing  food  production 
-includes  conditions  which  have  their  effect  upon  the  whole  industrial 
system.  In  the  large  they  resolve  themselves  into  an  increase  in  the 
risk  and  uncertainty  which  accompanies  business  enterprise.  They 
include  capricious  changes  in  prices,  sudden  changes  in  the  industrial 
policy  of  the  government,  the  inability  to  determine  in  advance  the 
real  effects  of  price  control,  the  uncertainty  about  the  duration  of  the 
war  and  what  will  follow  it,  and  other  major  and  minor  forces  of 
dissension.  These  are  but  manifestations  of  the  general  disarrange- 
ment which  necessarily  accompanies  an  adjustment  of  the  industrial 
system  to  new  conditions.  The  losses  involved  in  adjusting  men, 
materials,  processes,  and  habits  to  new  ends  are  fairly  clear  to  anyone 
who  has  seriously  thought  about  the  problem  of  the  relationship  of 
industry  to  war.  Their  extent  and  nature  form  a  subject  much  too 
large  and  complex  to  be  discussed  here. 

V.      THE   BURDEN  PLACED   UPON   THE   UNITED   STATES 

The  argument  above  points  to  a  serious  shortage  of  food  and  a 
grave  food  problem  which  are  likely  to  be  with  us  until  the  end  of  the 
war.  It  gives  no  definite  promise  that  this  problem  will  be  less  acute 
or  even  that  it  will  not  be  more  menacing  in  the  future.  It  points 
clearly  to  the  United  States  as  the  country  which  must  bear  the  brunt 
of  the  task  of  feeding  the  Allies.  How  great  this  task  is  and  what  the 
resources  are  with  which  it  must  be  faced  a  brief  survey  of  the  situation 
will  indicate. 

To  recite  the  list  of  our  Allies  in  the  present  struggle,  or  to  name 
the  nations  which  are  not  our  enemies,  is  to  present  a  catalogue  of 
peoples  who  are  seriously  in  need  of  subsistence.  England,  France, 


FOOD  AND  FUEL  319 

Italy,  Belgium,  Portugal,  Spain,  Switzerland,  Denmark,  Holland, 
Norway,  and  Sweden  are  in  dire  need  of  food.  A  very  large  part  of 
the  population,  of  belligerent  and  neutral  countries  alike,  are  not 
getting  enough  to  make  them  productively  efficient,  and  no  incon- 
siderable part  of  them  are  becoming  an  easy  prey  to  disease.  It  is  a 
situation  of  actual  and  potential  famine  in  all  of  Western  Europe  which 
the  United  States  is  called  upon  to  face. 

It  is  hard  for  us  to  realize  that  the  United  States  is  much  less 
favorably  situated  for  producing  a  huge  food  surplus  than  it  was 
thirty  years  ago.  In  the  interim  industrialism  had  made  huge  strides 
in  the  land,  and  a  great  urban  population  has  arisen  to  eat  up  a  large 
part  of  the  surplus  of  food  produced  by  the  farms.  This  change  is 
indicated  by  a  growth  of  the  urban  population  in  the  twenty  years 
from  1890  to  1910  from  22,720,223  to  42,625,383,  or  more  than  80 
per  cent,  while  rural  population  during  the  same  period  increased  from 
40,227,491  to  49,348,883,  or  less  than  25  per  cent.  If  the  same 
ratios  have  been  maintained  since  1910  urban  population  has  now 
become  one-half  of  the  whole.  In  terms  of  food  production  decidedly 
more  than  one-half  of  our  population  now  produces  a  very  insignificant 
part  of  the  food  which  it  consumes,  for  the  rural  population  includes 
all  who  live  in  towns  of  less  than  2 ,500.  The  significance  of  the  change 
is  indicated  by  the  following  figures  of  the  production,  export,  and 
consumption  of  typical  food  products.  The  comparison  is  between 
the  average  of  the  five-year  period  ending  in  1895  and  that  ending  in 
1914.  The  average  production  of  wheat  per  year  for  the  former  period 
was  476,678,000  bushels;  for  the  latter  697,459,000  bushels,  an 
increase  of  46  per  cent.  Between  these  periods  domestic  consumption 
increased  from  310,107,000  to  588,492,000  bushels,  or  about  90  per 
cent,  wKne  exports  decreased  from  166,571,000  to  104,945,000  bushels, 
or  37  per  cent.  The  average  production  of  corn  for  the  former  period 
was  1,602,171,000  bushels;  for  the  latter  2,752,372,000  bushels,  or  an 
increase  of  72  per  cent.  Consumption  increased  from  1,552,003,000 
to  2,790,962,000  bushels,  or  79  per  cent,  while  exports  decreased  from 
50,168,000  to  41,509,000  bushels,  or  17  per  cent.  The  figures  upon 
sugar,  beef,  pork,  and  other  staples  lead  to  similar  conclusions.  The 
growth  of  industrial  centers  has  given  us  an  increasingly  urban  popu- 
lation which  has  been  consuming  a  larger  and  larger  part  of  the  food 
surplus. 

Our  primary  concern  is  of  course  with  current  production  and 
current  consumption.  Taking  the  leading  food  products  we  note  that 


320  ECONOMICS  OF  WAR 

while  in  1915  the  production  of  wheat  increased  to  1,025,801,000 
bushels,  of  which  332,465,000,  or  37  per  cent,  was  exported,  the 
yield  fell  to  639,000,000  bushels  in  1916,  and  the  estimated  yield  for 
1917  is  only  656,000,000  bushels.  Our  current  normal  consumption  is 
about  575,000,000  bushels,  leaving  only  about  80,000,000  bushels  of 
wheat  to  be  exported,  if  we  continue  the  prodigal  waste  of  the  days 
before  the  war.  The  yield  of  corn  for  1917  is  estimated  at  3,248,- 
000,000  bushels,  an  increase  of  495,628,000  bushels,  or  18  per  cent, 
over  the  average  yield  of  the  five  years  preceding  the  opening  of  the 
European  war.  Our  crops  of  barley  and  rye,  aggregating  respectively 
204,000,000  and  56,000,000  bushels,  are  not  of  a  size  to  add  appreciably 
to  our  surplus  of  food  cereals.  Like  the  corn  crop,  the  crop  of  oats 
last  year  was  particularly  large,  aggregating  1,533,000,000  bushels. 
These  figures  indicate  that  the  great  increase  has  been  in  corn  and 
oats,  cereals  upon  which  neither  we  nor  the  Europeans  have  been 
depending  for  bread. 

An  early  estimate  places  the  winter  wheat  crop  for  the  current 
year  at  about  1,000,000,000  bushels.  Yet  these  figures,  promising  as 
they  are,  do  not  indicate  the  end  of  the  problem.  If  when  the  returns 
are  in  we  have  partially  escaped  the  scarcity  of  last  year,  it  will  be 
indicative  rather  of  a  slight  respite  than  of  security.1 

For  a  time  after  the  beginning  of  the  war  the  domestic  production, 
or  more  properly  the  marketing,  of  meat  increased  materially.  This 
is  evidenced  by  an  increase  in  our  exports  of  meat  (excluding  pork) 
from  493,848,000  pounds,  which  was  the  average  for  the  three  years 
before  the  war,  to  1,339,193,000  pounds  for  the  year  ending  June  30, 
1916,  or  about  190  per  cent.  But  the  figures  lose  their  significance 
when  we  remember  that  before  the  war  Western  Europe  received  only 
a  very  small  part  of  its  meat  from  the  United  States  and  that  the  last 
figure  is  small  when  compared  with  our  export  of  wheat  or  with  the 
meat  annually  consumed  at  home.  Yet  there  is  abundant  evidence 
from  all  parts  of  the  country  that  stocks  are  being  seriously  depleted 
and  that  the  dearth  of  breeding  animals  will  prevent  so  large  an 
annual  slaughter  in  the  immediate  future.  Taken  together,  these 
figures  indicate  the  nature  and  magnitude  of  the  problem  of  economy 
in  consumption,  as  well  as  a  complicated  problem  in  production, 
which  we  have  to  face  this  season  and  perhaps  for  some  seasons  to 
come. 

1  ED.  NOTE. — Midsummer  crop  reports  indicate  a  substantial  improvement 
over  the  situation  that  prevailed  a  year  ago. 


FOOD  AND  FUEL  321 

But  our  concern  cannot  stop  with  so  shortsighted  a  consideration 
of  the  problem.  If  the  war  is  to  go  beyond  the  present  year  we  need 
to  make  our  plans  with  that  contingency  in  mind.  If  it  stops  within 
the  year  its  effects  upon  the  production  of  food  cannot  be  immediately 
halted  and  the  food  problem  will  remain  acute  for  some  time  to  come. 

VI.      THE   ESSENTIALS   OF   A  FOOD  POLICY 

The  analysis  of  the  conditions  out  of  which  springs  the  food  prob- 
lem makes  evident  the  principles  which  must  dominate  its  solution. 
The  pages  above  indicate  that  for  many  years  to  come  the  United 
States  must  either  produce  or  save  a  large  surplus  of  the  staple  food 
commodities  above  the  needs  of  its  civilian  population.  This  can  be 
accomplished  by,  and  only  by,  diverting  food  and  the  stuff  of  which 
it  is  made  from  ordinary  peace  uses  into  this  surplus  available  for  our 
military  forces  and  our  Allies.  Like  all  the  great  supply  problems, 
the  food  problem  can  find  a  genuine  solution  only  in  a  consciously 
formulated  policy  of  diversion.  Its  translation  into  terms  of  the 
diversion  of  limited  economic  resources  to  specific  ends  is  easily  made. 
In  the  newer  terms  it  requires  merely  a  brief  statement  in  conclusion. 

First  and  most  obvious  is  the  obligation  which  the  food  problem 
imposes  upon  the  consumer.  Within  the  last  year  it  has  become  a 
truism  that  we  can  all  contribute  to  a  military  victory  by  abstaining 
from  the  over-consumption  and  waste  of  commodities  like  wheat, 
meat,  and  sugar,  which  without  change  of  form  can  be  used  by  our 
soldiers  and  our  civilian  Allies.  As  yet  it  is  not  so  clearly  appreciated 
that  many  of  our  expenditures  upon  food  get  their  necessity  from 
social  convention  rather  than  from  bodily  need  or  physical  or  mental 
vigor.  Before  the  war  the  consumption  of  food,  both  in  quantity 
and  in  the  wasteful  methods  of  its  preparation,  was  affected  quite 
largely  by  a  desire  to  do  the  proper  thing.  A  great  saving  may  be 
effected  by  keeping  in  mind  the  principle  that  the  selection  of  articles 
for  consumption  must  be  based  upon  their  food  values  rather  than 
their  customary  positions  in  the  dietary  or  social  budget.  More 
recently  we  have  been  trying  to  save  staple  foods  for  war  uses  by 
substituting  for  them  other  foods  diverted  from  less  important  uses. 
As  an  immediate  necessity  much  can  be  said  in  favor  of  this  policy, 
provided  the  substitutes  can  be  made  to  yield  the  food  values  which 
inhere  in  them.  But  as  a  part  of  a  long-time  program  this  is  of 
doubtful  wisdom,  since  the  alternative  is  present  of  using  the  resources 
embodied  in  these  substitutes  to  turn  out  products  more  in  keeping 


322  ECONOMICS  OF  WAR 

with  the  conventional-  standards  of  American  culinary  technique. 
While  these  and  similar  measures  may  be  quite  proper  and  fit  so  far 
as  they  go,  they  do  not  afford  a  solution  of  the  food  problem.  They 
are  based  upon  immediate  considerations,  overlook  the  period  of 
several  years  during  which  there  is  every  probability  that  for  the 
Western  world  the  problem  will  remain  a  serious  one,  and  assume  that 
the  problem  is  limited  to  consumption.  They  constitute  an  attempt 
to  solve  the  problem  out  of  existing  stocks  of  food.  At  best  such  a 
shortsighted  policy  will  yield  a  bare  minimum  that  will  hardly  tide 
the  peoples  of  the  allied  countries  through  an  emergency.  It  will 
not  give  them  the  supply  of  food  which  is  necessary  for  health,  for 
industrial  efficiency,  and  for  a  vigorous  population  in  the  next  genera- 
tion. 

Second  is  the  burden  which  the  food  problem  imposes  upon  the 
producer.  It  is  his  duty  to  see  to  it  that  his  limited  resources  are 
used  in  such  a  way  as  to  turn  out  products  of  maximum  food  value 
in  comparison  with  the  resources  which  have  gone  into  them.  Since 
huge  quantities  of  staple  products  are  required,  he  must  not  give  his 
time,  the  labor  of  his  men,  his  fertilizers,  the  use  of  his  invested  capital, 
and  the  properties  of  his  soil  to  the  costly  production  of  fancy  vege- 
tables and  meats  which  are  intended  to  tickle  the  palate  of  the  dietary 
aesthete.  Under  present  conditions  a  non-regulated  price  system  is 
not  a  proper  guide  to  agricultural  production.  It  has  the  double 
failing  of  leading  too  many  people  to  produce  articles  which  in  the 
previous  system  have  commanded  high  prices,  to  the  end  that'  the 
quantities  of  staple  commodities  are  not  properly  apportioned,  and 
of  allowing  the  production  of  articles  to  suit  the  whims  of  those  who 
can  afford  to  pay.  While  it  seems  necessary  to  insure  prices  high 
enough  to  tempt  farmers  to  produce,  these  prices  to  be  effective  must 
be  carefully  regulated.  To  the  end  of  proper  production  the  consumer 
can  help  the  producer  by  refraining  from  buying  unnecessary  food 
products  at  prices  attractive  to  the  latter  and  thus  tempting  him  to 
a  wasteful  use  of  resources. 

But  the  real  solution  of  the  problem  calls  for  a  positive  policy  on 
the  part  of  the  government.  By  absolute  prohibition,  or  by  a  denial 
of  the  use  of  essential  materials,  the  state  must  see  to  it  that  food 
resources  used  in  the  production  of  nonessential  food  commodities  be 
diverted  to  the  production  of  essential  commodities.  But  even  more 
is  necessary.  The  proper  solution  of  the  problem  requires  supplies 
larger  than  such  makeshifts  can  offer.  The  government  must  see 


FOOD  AND  FUEL  323 

to  it  that  where  possible  machinery  is  forthcoming  to  take  the  place 
of  the  labor  which  has  gone  into  the  army.  It  must  divert  capital 
from  nonessential  industrial  uses  to  essential  agricultural  uses.  And 
where  a  labor  shortage  threatens  production  it  must  see  that  an 
adequate  labor  supply  is  found.  In  resources  of  the  soil  the  United 
States  lacks  nothing;  the  function  of  the  state  is  to  see  that  the 
auxiliary  materials  are  forthcoming  and  that  food  be  increased  even 
at  a  sacrifice  of  nonessential  industries. 

Third  is  the  burden  which  is  placed  upon  the  state  to  supervise 
the  proper  distribution  of  food.  It  must  find  principles  for  settling 
the  claims  between  the  civilian  populations  of  our  Allies,  our  armies, 
and  the  civilian  population  at  home.  In  addition  the  problem  of 
distribution  between  the  individuals  which  make  up  each  of  these 
groups  is  a  difficult  one.  Fortunately  only  the  last  of  these  devolves 
upon  those  who  are  responsible  for  the  national  food  policy.  Even 
the  bare  outlines  of  the  solution  of  these  problems  of  distribution 
would  require  a  great  deal  more  space  than  this  article  occupies,  and 
here  it  must  be  dismissed  with  a  word.  Economic  theory  and  actual 
practice  alike  attest  the  possibility  of  the  solution  of  these  problems 
by  authoritative  regulation,  including  price-fixing.  But  it  is  safe  to 
say  that  no  authoritative  policy  can  hope  to  succeed  if  it  be  formu- 
lated in  ignorance  of  the  nature  of  the  price  system  and  of  the  relation 

of  particular  prices  to  economic  conduct. 

l 

XXX.    The  World's  Coal  Situation1 

I.      COAL  PRODUCTION 

The  coal  industry  is  the  one  basic  industry  most  closely  connected 
with  the  present  war.  To  both  the  Allies  and  the  Central  Powers 
their  respective  available  coal  resources  constitute  a  sine  qua  non  for 
carrying  on  the  war,  while  in  the  period  of  reconstruction  after  the 
war  coal  will  unquestionably  become  one  of  the  most  vital  factors 
in  determining  industrial  expansion  and  the  growth  of  international 
trade. 

Stimulation  of  coal  production  has  been  the  factor  of  prime 
importance  in  the  world's  coal  situation  ever  since  the  present  great 

1  By  William  Notz.  Adapted  from  "The  World's  Coal  Situation,  I,"  Journal 
of  Political  Economy,  XXVI  (June,  1918),  567-612. 

ED.  NOTE. — Mr.  Notz  is  an  expert  investigator  with  the  Federal  Trade 
Commission. 


324 


ECONOMICS  OF  WAR 


conflict  of  nations  began.  Everything  else — prices,  wages,  trans- 
portation, legislation,  etc. — has  become  primarily  a  means  toward  the 
all-important  end  of  producing  as  much  coal  as  possible.  While 
complete  production  figures  are  not  available  for  all  coal-producing 
countries,  Table  I  shows  the  production  of  coal  in  the  leading  coal- 
producing  countries  of  the  world  during  the  five  years  from  1913  to 
1917. 

From  Table  I  it  will  be  seen  that  the  coal  production  of  most  of 
the  large  Coal-producing  countries  has  decreased  considerably  since 
1913.  Great  Britain,  Germany,  France,  Russia,  Austria,  and  Belgium 
show  greatly  reduced  annual  outputs.  In  the  United  States,  Japan, 
China,  Spain,  and  Holland  the  pre-war  level  was  either  maintained  or 
increased.  Canada  shows  a  slight  decrease.  The  main  causes  for 
the  decline  in  coal  production  were  lack  of  labor  and  inability  to  move 
coal  from  the  mines  owing  to  car  shortage.  Strikes,  inefficient  labor, 
scarcity  of  machinery  and  pit  timber  were  other  contributing  causes- 
The  decrease  in  French,  Belgian,  and  Russian  coal  production  was 
caused  by  the  German  military  invasion  of  large  parts  of  the  coal  fields 
in  those  countries. 

TABLE  I 

COAL  PRODUCTION  IN  THE  LEADING  COAL-PRODUCING  COUNTRIES  OF  THE  WORLD 


Country 

1913 

1914 

IQIS 

1916 

1917 

United  States.  .  . 
Great  Britain  .  .  . 
Germany 

570,048,125 
287,698,617 
278,627,4.07 

513,525,477 
265,664,393 
24<;,482,i3S 

531,619,487 
253,206,081 
235,082,000 

585,372,568 
256,348,351 

621,409,629 

248,473,119 

Austria-Hungary 

50,647,057 

30,896,388 

28,558,719 

France           .    . 

40,843,618 

29,786,50^ 

19,908,000 

21,477,000 

28,960,000 

Russia 

24x00.674 

27,820,632 

13,622,400 

13,266,760 

Belgium  
Taoan 

22,847,000 

21,  31^,062 

21,203,410 

15,930,000 
2O,40O,747 

22,QOI,'\8o 

India 

18,163,856 

I7,IO3,Q32 

17,  214.3OQ 

China  

IS  ,432,200 

l8,OOO,OOO 

Canada  

15,012,178 

17,  637,5  2Q 

13,267,023 

14,483,30'; 

14,015,588 

Spain  . 

4.,  731,64,7 

4,424,430 

4,686,753 

5,588,594 

Holland 

2,064,608 

2,333,000 

2,656,000 

II.      TRANSPORTATION   CONSIDERATIONS 

Transportation  has  become,  next  to  production,  the  most  impor- 
tant problem  in  connection  with  the  international  coal  situation.  In 
fact,  difficulties  of  rail  and  water  transportation  have  multiplied  so 
rapidly  during  the  course  of  the  war  that  the  whole  question  of 


FOOD  AND  FUEL  325 

supplying  the  world's  needs  of  coal  at  present  depends  largely  upon 
adequate  shipping  facilities. 

The  paramount  importance  of  this  phase  of  the  transportation 
problem  has  been  officially  recognized  in  several  special  government 
reports  on  this  subject  here  and  abroad.  The  Federal  Trade  Com- 
mission reported  to  Congress  "that  the  coal  industry  is  paralyzing 
the  industries  of  the  country,  and  that  the  coal  industry  itself  is 
paralyzed  by  the  failure  of  transportation."  The  coal  situation  in 
Canada  was  described  in  a  report  submitted  to  the  Minister  of 
Labour  as  follows:  "Transportation  had  most  to  do  with  the  con- 
ditions in  so  far  as  Quebec  and  Ontario  were  concerned.  The  partial 
failure  of  the  railroads  to  meet  the  situation  was  probably  the  main 
cause  of  the  [coal]  shortage,  as  with  transportation  available  coal 
could  have  been  had."  In  Great  Britain  the  first  difficulty  which 
arose  in  connection  with  the  coal  situation  after  the  outbreak  of  war 
was  one  of  distribution,  due  to  the  congestion  of  railways.  An 
official  communication  recently  issued  by  the  German  government 
states  that  the  inability  to  meet  the  demand  for  coal  is  solely  due  to 
lack  of  transportation  facilities.  Limitation  of  passenger  traffic  is 
suggested  as  a  means  of  meeting  the  difficulty.  Enormous  stocks  of 
coal  at  the  mines,  it  is  claimed,  cannot  be  moved  due  to  rolling-stock 
shortage.  In  the  Scandinavian  countries,  France,  Italy,  and  South 
America,  all  of  which  depend  at  present  for  a  large  part  of  their  coal 
supply  on  oversea  shipments,  the  scarcity  of  coal-carrying  vessels 
and  exorbitant  freight  rates  have  become  matters  of  grave  concern. 

As  one  means  of  relieving  railroad  traffic  congestion  zoning  schemes 
have  been  put  in  operation  in  Great  Britain,  the  United  States,  and 
France.  These  countries  were  divided  into  areas  or  zones,  the  inter- 
change of  coal  between  producing  areas  was  restricted,  and  consuming 
districts  were  allotted  specific  sources  of  supply.  As  a  further  means 
for  economizing  railway  transport,  inland  canals  have  been  utilized 
for  coal  shipments  in  this  country  and  in  Europe  to  a  greater  extent 
than  ever  before.  For  many  years  practical  coal  men  have  advocated 
the  buying  and  storing  of  coal  by  household  consumers  during  the 
summer  months  so  as  to  avoid  coal-traffic  congestion  occasioned  by 
rush  orders  during  the  fall  and  winter  months.  Special  inducements 
in  the  form  of  summer  discounts  were  given  with  this  end  in  view. 
Nation-wide  educational  campaigns  to  bring  about  greater  co- 
operation of  the  public  in  this  matter  have  been  organized  in  several 
countries,  and  prospects  are  that  the  results  attained  will  have  a 


326  ECONOMICS  OF  WAR 

permanent  beneficial  effect,  not  only  on  coal  transportation  but  also 
on  the  financial  side  of  the  coal  trade  in  the  future. 

III.      THE   LABOR   SITUATION 

The  labor  question,  in  so  far  as  it  affects  the  world's  coal  situation, 
offers  several  distinct  features.  Throughout  the  world  a  shortage  of 
labor  has  developed  in  the  coal  fields.  It  has  been  a  matter  of  vital 
importance  to  the  governments  of  all  the  coal-producing  countries  to 
provide  for  an  adequate,  steady,  and  efficient  labor  supply  as  a  means 
of  keeping  the  production  of  coal  at  the  maximum.  At  the  beginning 
of  the  war  the  mistake  was  made  in  Great  Britain,  Germany,  and 
Canada  of  drawing  heavily  upon  the  coal  miners  for  service  in  the 
army.  This  mistake  reflected  itself  almost  immediately  in  a  decided 
falling  off  in  the  coal  production  and  made  it  necessary  to  send  thou- 
sands of  the  enlisted  coal  miners  back  to  the  coal  fields.  In  the 
United  States  thousands  of  men  in  1915  and  1916  left  the  coal  fields 
for  more  lucrative  employment  in  munition  factories,  etc.,  where  the 
scale  of  wages  ranged  on  an  average  about  20  per  cent  higher  than 
wages  in  the  coal  fields. 

To  keep  miners  from  seeking  other  employment  and  to  remove 
labor  unrest  due  to  wage  troubles,  liberal  allowances  for  wage  increase 
were  made  in  the  regulations  governing  maximum  coal  prices.  The 
French  law  of  April  23,  1916,  provides  that  the  average  wages  in 
mines  shall  not  be  in  any  case  below  those  in  effect  in  1914  and  1915, 
and  that  all  payment  in  kind  to  the  miners  or  their  families,  affirmed 
by  local  custom,  shall  be  observed.  In  England  the  so-called  "war 
wage"  containing  liberal  provisions  was  established  on  September  17, 
1917.  In  the  United  States  a  special  wage  increase  of  45  cents  per 
ton  was  provided  for  by  an  order  of  the  United  States  Fuel  Adminis- 
tration of  October  27,  1917,  this  being  the  second  wage  increase  for 
coal  miners  in  that  year.  Never  before  in  the  history  of  coal-mining 
have  wages  in  the  coal  fields  of  the  world  been  as  high  as  they  are  at 
the  present  time. 

Nevertheless  there  has  been  much  unrest  and  numerous  strikes 
have  occurred  among  the  coal  miners  of  Great  Britain,  the  United 
States,  and  Germany.  The  main  causes  for  these  labor  troubles  have 
been  shutdowns  at  the  mines  on  account  of  shortage  of  cars,  thus 
decreasing  the  number  of  work  days,  and  a  heavy  increase  in  mine 
fatalities,  due  partly  to  inexperienced  labor  and  partly  to  less  rigid 
enforcement  of  mine-safety  regulations  in  order  to  speed  production. 


FOOD  AND  FUEL  327 

IV.      COAL  PRICES 

The  question  of  war-time  coal  prices  offers  many  angles  of  interest. 
Everywhere  prices  have  increased  far  above  pre-war  levels.  Volun- 
tary agreements  on  the  part  of  producers  and  dealers  to  limit  prices 
and  profits  have  failed  without  exception.  In  all  the  leading  coal- 
consuming  countries  of  the  world  maximum  prices  had  to  be  fixed 
sooner  or  later  by  government  action.  In  every  case  the  maximum 
mine  prices  are  considerably  above  the  average  scale  of  prices  obtain- 
ing in  the  years  immediately  prior  to  the  war.  In  every  country 
where  maximum  sales  prices  at  the  mines  were  fixed,  liberal  allowances 
were  made  for  wage  increases  to  mine  workers.  In  Great  Britain 
present  maximum  mine  prices  approximate  6s.  6d.  above  the  average 
mine  price  which  obtained  during  the  year  ending  June  30,  1914.  In 
the  United  States  special  mine  prices  have  been  fixed  for  each  state, 
and  in  many  cases  also  for  certain  coal  fields  within  a  state.  The 
f.o.b.  price  for  bituminous  coal  in  Pennsylvania  was  in  1913,  $1.11 
and  in  1918,  $2.60.  Anthracite  increased  to  $4.00  ($4.55  for 
white  ash  broken). 

In  Germany  the  total  increase  in  mine  prices  of  the  Rhenish- 
Westphalian  Coal  Syndicate  from  the  beginning  of  the  war  to  January, 
1917,  approximated  $125  per  ton. 

While  a  certain  degree  of  uniformity  is  noticeable  in  the  rise  in 
price  levels  for  coal  at  the  mines  in  the  countries  where  maximum 
prices  have  been  fixed,  an  entirely  different  picture  presents  itself 
if  we  compare  the  maximum  retail  coal  prices  obtaining  under  govern- 
ment regulations  in  different  sections  of  the  same  country.  In  most 
countries  the  national  coal  controller  has  established  a  uniform 
maximum  margin  of  profit  for  all  retail  coal  dealers,  while  local  author- 
ities have  fixed  maximum  retail  coal  prices  for  their  communities.  By 
reason  of  the  fact  that  in  establishing  maximum  retail  consumers' 
prices  allowances  had  to  be  made  for  increased  handling  expenses, 
freight  rates,  middlemen's  profits,  war  taxes,  etc.,  retail  coal  prices 
at  the  present  time  universally  show  a  very  heavy  increase  over 
pre-war  prices. 

V.      TENDENCY   TOWARD   COMBINATIONS 

Mention  should  be  made  of  the  tendency  among  operators,  jobbers, 
and  wholesale  and  retail  dealers  everywhere  to  form  voluntary  trade 
associations  and  combines.  In  England  such  a  movement  on  a  large 
scale  was  initiated  by  Lord  Rhondda  just  prior  to  the  war,  including 


328  ECONOMICS  OF  WAR 

not  only  the  colliery  owners  but  also  the  world-wide  coal  export  trade 
of  Great  Britain.  In  Germany  and  France  coal  syndicates  and  cartels 
have  existed  for  many  years;  in  fact,  in  the  former  country  a  strong 
effort  was  made  in  1915  to  disrupt  the  leading  coal  syndicate,  which 
was  averted,  however,  by  government  intervention.  The  combina- 
tion movement  has  made  itself  felt  most  strongly  during  the  war  in  the 
United  States.  In  1917  the  National  Coal  Operators'  Association, 
the  National  Jobbers'  Association,  and  the  National  Retail  Coal 
Dealers'  Association  were  organized.  In  addition  to  these  national 
associations,  numerous  state  and  local  associations  have  organizations 
of  their  own,  including  about  fifty  operators'  associations  in  various 
coal  fields  throughout  the  country.  In  Canada  a  similar  movement 
is  noticeable,  as  also  in  Sweden.  Shipping  pools  like  the  Tidewater 
Coal  Exchange,  the  Lake  Erie  Coal  Exchange2  and  its  successor,  the 
Coal  and  Ore  Exchange,  indicate  a  similar  tendency  toward  syndica- 
tion among  American  coal-shipping  interests.  On  the  other  hand  a 
parallel  movement  of  combining  is  noticeable  among  the  miners — 
the  number,  size,  solidarity,  and  influence  of  the  miners'  unions  in  all 
the  coal-producing  countries  having  greatly  increased  during  the  war. 
This  universal  movement  of  the  coal  producers  and  dealers  on  the 
one  side  and  of  coal  miners  on  the  other  to  combine  for  the  protection 
of  their  common  interests  represents  one  of  the  significant  develop- 
ments in  the  world's  coal  situation,  and  the  chances  are  that  in  the 
near  future  it  will  speed  the  various  governments  to  enact  remedial 
legislation  in  the  public  interest. 

VI.      EXPORT   TRADE   AND   BUNKER   SITUATION 

An  analysis  of  the  international  coal  export  situation  from  1913 
to  1918  reveals  some  very  interesting  facts.  One  of  the  most  signifi- 
cant is  the  great  decline  in  the  coal  exports  of  Great  Britain,  whose 
position  as  a  commercial  nation  rests  very  largely  on  her  coal  export 
trade.  The  increased  demand  for  domestic  consumption  and  the 
decreased  available  shipping  tonnage  have  brought  the  total  of  Great 
Britain's  coal  exports  from  97,719,996  tons  in  1913  down  to  51,341,487 
tons  in  1917.  This  amounts  to  a  decline  in  the  coal  exports  for  the 
two  years  of  more  than  46,000,000  tons.  In  comparison  with  these 
figures  it  is  interesting  to  note  that  the  total  exports  of  anthracite  and 
bituminous  coal  from  the  United  States  have  increased  during  the 
same  period  from  23,022,746  tons  in  1913  to  27,616,500  tons  in  1917. 

During  the  war,  ocean  freight  rates  on  export  coal  have  reached 
unprecedented  figures.  As  compared  with  1914,  the  last  normal  year 


FOOD  AND  FUEL  329 

prior  to  the  war,  ocean  freights  from  Atlantic  ports  to  European  and 
South  American  ports  have  increased  as  much  as  400  per  cent. 
Scarcity  of  tonnage,  high  insurance  rates  on  account  of  submarine 
depredations,  and  high  wages  for  seamen  were  the  chief  causes  for 
these  high  freight  rates,  although  individual  tramp  steamers  sailing 
under  neutral  flags  apparently  seized  upon  the  opportunities  for 
profiteering. 

Closely  connected  with  the  question  of  coal  exports  is  that  of 
coaling  stations  for  bunkering  purposes.  The  nation  which  controls 
the  coaling  stations  along  the  international  sea  routes  will  have  a  great 
advantage  over  its  competitors  in  international  trade.  In  the  past 
Great  Britain  was  the  foremost  maritime  nation  in  possession  of 
strategic  artificial  coaling  stations  and  thus  gained  control  of  the  bulk 
of  the  world's  supply  of  bunker  coal.  Gibraltar,  Malta,  Port  Said, 
Singapore,  Hongkong,  and  Shanghai  are  some  of  the  British  coaling 
stations  which  encircle  the  globe.  The  war  has  effected  great  changes. 
While  Germany  has  lost  the  few  coaling  stations  she  possessed  at 
Tsing-Tau,  in  Africa,  and  in  the  Samoan  Islands,  American,  Japanese, 
and  Dutch  coals  have  won  new  markets.  England's  exports  of 
bunker  coal  have  declined  from  21,031,550  tons  in  1913  to  12,988,172 
tons  in  1916.  In  the  Far  East,  Japanese  coal  has  in  many  places 
supplanted  English  coal,  and  on  the  entire  Northern  Pacific  coast  of 
Asia,  Japanese  coal  is  now  predominant.  Nagasaki  and  Yokohama 
are  the  chief  Japanese  coaling  ports  and  are  used  by  practically  all 
coal-burning  steamers  crossing  the  North  Pacific.  In  the  East  Indies 
the  Dutch  have  recently  built  up  a  successful  bunker  trade.  Dutch 
coaling  stations,  supplying  Sumatra  and  Borneo  coal,  have  been 
established  at  Batavia,  Soerabaia,  and  notably  at  Sabang,  a  strategic 
location  at  the  entrance  to  the  Straits  of  Malacca  and  on  the  direct 
trade  route  from  Europe  to  the  Far  East. 

The  war  has  brought  about  a  marked  increase  in  the  American 
bunker  coal  trade  of  the  Atlantic.  The  excellent  coaling  facilities 
at  Panama  and  Colon  give  the  United  States  complete  control  of  one 
of  the  most  important  replenishing  depots  of  the  world's  trade. 
American  bunker  coal  has  also  supplanted  British  coal  to  a  very  large 
extent  at  the  leading  South  American  stations. 

VII.      BY-PRODUCT  INDUSTRY 

One  of  the  most  far-reaching  and  salutary  effects  of  the  war  upon 
the  coal  industry  in  the  United  States,  Canada,  and  Great  Britain  is 
the  powerful  stimulus  it  has  exercised  on  the  by-product  coke  industry. 


330  ECONOMICS  OF  WAR 

The  present  war  has  brought  the  people  of  these  countries  to  realize 
their  former  dependence  on  Continental  Europe,  and  on  Germany  in 
particular,  for  the  by-products  obtained  in  distilling  coal,  especially 
for  dyestuffs.  Up  to  a  few  years  ago  the  United  States  was  the  most 
backward  of  all  great  nations  in  the  manufacture  of  coal-tar  products. 
Since  1915  all  this  has  changed.  The  old  beehive  oven  is^  being 
supplanted  by  by-product  ovens  to  such  an  extent  that  in  the  three 
years  from  January  i,  1915,  to  January  i,  1918,  the  by-product  coke 
production  has  practically  doubled  and  there  has  been  as  much  gain 
as  in  the  previous  twenty  years.  In  addition  to  the  great  stimulus 
given  to  the  chemical  and  manufacturing  industries  by  the  supply  of 
such  an  abundance  of  raw  materials,  one  of  the  most  valuable  results 
of  the  introduction  of  the  by-product  coke  ovens  is  the  conservation 
of  our  coal  supply.  It  is  estimated  that  the  ovens  put  in  operation 
during  the  three  years  mentioned  above  will  save  annually  to  this 
country  the  fuel  equivalent  of  9,000,000  tons  of  coal.  The  value  of 
by-products  obtained  in  the  manufacture  of  coke  in  the  United  States 
from  1913  to  1915  was  as  follows:  1913,  $16,925,941;  1914,  $17,529,- 
088;  1915,  $29,824,579. 

In  Great  Britain  the  recovery  of  by-products  from  coal  is  being 
actively  encouraged  by  the  government  along  systematic  lines  with  a 
view  to  future  expansion  of  this  industry  on  a  large  scale.  A  special 
Fuel  Research  Board  has  been  organized  for  this  purpose,  and  a  fuel 
research  station  has  been  established  to  investigate  the  problem  of 
replacing  the  greater  proportion  of  raw  coal  now  used  by  the  substitu- 
tion of  various  fuels  obtainable  from  coal  after  the  by-products  have 
been  extracted. 

XXXI.     Coal  Problems  of  the  United  States 
i.     OUR  HEATLESS  "HOLIDAYS"1 

War's  first  drastic  home  regulation,  Fuel  Commissioner  GarfieLd's 
coal-conservation  order,  brought  home  to  everybody,  worker  or 
employer,  the  grim  reality  of  .the  coal  famine,  and  many  who  were  hit 
hardest  accepted  it  as  a  necessary  measure  to  be  obeyed  with  patriotic 
self-denial.  To  relieve  the  coal  famine  in  the  eastern  states,  it  will  be 
recalled,  all  factories  in  the  United  States  east  of  the  Mississippi  River 
and  in  Minnesota  and  Louisiana,  with  some  exceptions,  were  directed 
to  shut  down  for  five  days  beginning  January  18.  Moreover,  Monday 

1  Adapted  from  the  Literary  Digest,  Vol.  LVI,  No.  4,  January  26,  1918. 


FOOD  AND  FUEL  331 

for  ten  weeks  was  decreed  a  holiday  on  which  offices,  factories,  and 
stores,  except  drug  and  food  stores,  must  use  only  such  fuel  as  is 
necessary  to  prevent  damage.  The  order  under  which  these  restric- 
tions were  made,  according  to  the  Fuel  Administration's  statement 
to  the  press,  was  "designed  to  distribute  with  absolute  impartiality 
the  burden,"  and  it  added  that  the  Fuel  Administration  "counts  upon 
the  complete  patriotic  cooperation  of  every  individual,  firm,  and  cor- 
poration affected  by  the  order  in  its  enforcement."  We  read  further 
that  the  government  aims  to  carry  out  its  plan  without  "undue  inter- 
ference with  the  ordinary  course  of  business"  and  earnestly  desires  to 
"prevent  entirely  any  dislocation  of  industry  or  labor." 

Fuel  Administrator  Garfield  hoped  to  save  30,000,000  tons  of  coal 
and  to  give  the  railroads  a  chance  to  straighten  out  the  transportation 
tangle  in  the  eastern  states,  according  to  a  Washington  correspondent 
of  the  New  York  Tribune,  who  notes  that  the  measures  were  taken  by 
the  President  and  the  government  heads  "as  a  desperate  remedy." 
The  closing  down  of  the  greater  part  of  the  nation's  industries,  trades, 
and  business,  says  the  New  York  Sun,  is  the  "fruit  of  the  inane, 
criminal  starvation  of  the  railroads  by  the  government  for  a  genera- 
tion"; yet  regardless  of  what  it  may  cost  any  individual  or  group  of 
individuals,  the  order  is  to  be  "greeted  without  protest."  A  surgeon 
was  more  welcome  than  an  undertaker,  in  the  view  of  this  daily,  and  a 
disaster  of  the  second  degree  and  a  temporary  one  is  better  than  a 
disaster  of  the  first  degree  and  a  permanent  one.  If  the  five-day  term 
clears  the  railroads  and  the  Monday  holidays  set  the  trains  running 
with  their  former  clocklike  regularity,  the  Sun  added,  we  can  resume 
being  the  "busiest  nation  on  earth,  instead  of  being  an  industrial 
paralytic."  While  recognizing  that  the  order  struck  Utica  and  all 
cities  in  the  designated  territory  "a  staggering  blow,"  the  Utica  Press 
holds  that  there  is  really  nothing  a  patriotic  city  could  do  about  it 
save  to  accept  the  situation  with  as  good  grace  as  possible,  and  if  the 
result  hasten  the  end  all  will  agree  that  it  was  a  good  investment. 
The  Chicago  Herald  considered  the  order  "a  tremendous  decision" 
carrying  with  it  a  "tremendous  responsibility,"  and  while  the  chief 
industries  of  the  principal  part  of  a  nation  can  not  be  stopped  even  for  a 
day  without  disorganization  and  loss,  still  the  country  is  willing  to  pay 
the  price  "if  it  is  the  necessary  cost  of  preventing  the  suffering  of 
hundreds  and  thousands,  perhaps  millions,  of  individuals  and  of 
keeping  certain  indispensable  war  and  public  functions  going  at  their 
accustomed  speed."  Although  the  Fuel  Administrator's  order  is  the 


332  ECONOMICS  OF  WAR 

most  drastic  in  the  history  of  the  country,  the  Wheeling  Register 
considered  it  justified  and  instructive  of  the  fact  that  we  are  in  this 
war  to  win,  and  "upon  the  people,  as  well  as  the  soldiers,  rest  the 
nation's  chances  of  victory."-  While  the  five-day  suspension  order 
meant  the  loss  of  millions  of  dollars  to  the  wage-earning  classes,  the 
Register  believed  the  measure  would  cheer  our  Allies  and  depress 
Germany,  and  it  urged  the  people  to  show  their  determination  by 
accepting  without  complaint  any  sacrifices  they  are  called  upon  to 
make.  Said  the  Buffalo  Courier:  "  If  the  sacrifices  entailed  by  it  will 
permit  the  supply  ships  now  held  in  port  through  lack  of  bunker  coal 
to  sail  for  France  and  England  with  their  needed  cargoes;  if  it  will 
permit  the  makers  of  war  supplies  in  the  United  States  to  go  ahead 
steadily  with  their  production  of  essential  materials  for  the  use  of  our 
troops  abroad,  the  rest  of  the  country  will  meet  the  losses  and  depriva- 
tions entailed  with  reasonably  cheerful  philosophy  and  without  undue 
complaint." 

The  jolt  will  give  the  American  people  a  realization  of  the  "colossal 
magnitude"  of  the  war,  thought  the  Memphis  Commercial  Appeal, 
which  pointed  out  that  we  had  to  "organize  the  commerce  and  the 
industries  of  the  country  on  a  military  basis  as  well  as  the  actual 
fighting  arm  of  the  nation."  The  order  will  put  the  patriotism  of  the 
American  people,  and  especially  of  the  American  business  man,  to  "a 
very  stern  test,"  said  the  Charleston  News  and  Courier,  by  an  exhi- 
bition of  federal  power  "such  as  this  country  has  never  witnessed 
until  now." 

Tolerance  colored  with  disquiet  appeared  in  the  comment  of  some 
dailies,  such  as  the  Philadelphia  Inquirer,  which  assumed  that  the 
measure  was  based  on  good  and  sufficient  reason  and  said  every  one 
hoped  the  purpose  for  which  the  "unexampled  sacrifice"  was  asked 
would  be  "successfully  accomplished."  The  Albany  Knickerbocker 
Press  thought  the  effect  on  business  would  be  "very  discouraging  for 
the  time  being,"  and  the  effect  on  Germany  would  be  to  "give  it 
renewed  hope  and  much  comfort,"  yet  it  was  convinced  that  "some- 
time we  will  get  out  of  the  tangle  of  incompetence  and  be  on  our  feet 
again."  If  the  Administration  made  a  blunder,  said  the  Baltimore 
American,  it  will  be  held  strictly  responsible,  but  if  good  results  follow 
the  order  "no  blame  will  be  placed  up  to  it."  Yet  because  of  improv- 
ing coal  conditions  and  the  coming  warmer  weather  this  journal 
thought  the  coal  order  would  not  have  been  necessary  if  the  adminis- 
tration had  waited  a  week  or  so.  Many  journals  throughout  the 


FOOD  AND  FUEL  333 

country  were  openly  hostile  to  the  coal  order,  regarding  it  as  a  national 
disaster  and  a  confession  of  failure  on  the  part  of  the  Fuel  Adminis- 
tration. 

According  to  the  news  columns  of  the  New  York  Tribune,  the  coal 
order  meant  in  New  York  state  alone  an  immediate  loss  in  wages  of 
about  $95,000,000.  The  estimate  made  for  this  journal  was  based  on 
the  five  "workless  days"  plus  the  nine  "legal  holiday"  Mondays. 
The  loss  in  wages  throughout  the  twenty-eight  states  involved  was 
estimated  at  more  than  $680,000,000.  In  circles  of  commerce  and 
finance  there  was  a  divergence  of  opinion  similar  to  that  observed 
in  the  press.  Mr.  James  B.  Forgan,  chairman  of  the  Board  of 
Directors  of  the  First  National  Bank  of  Chicago,  was  quoted  in  a 
New  York  Times  dispatch  as  saying  that  while  he  did  not  know  the 
fuel  situation  was  so  serious  as  the  Administrator's  order  indicated, 
still  the  Administrator  undoubtedly  had  the  data  before  him,  arid 
"if  the  famine  is  as  critical  as  the  order  indicates,  even  this  drastic 
move  must  be  warranted."  In  the  same  dispatch  Mr.  Samuel  Hast- 
ings, president  of  the  Illinois  Manufacturers'  Association,  said  that 
more  than  250,000  employees  of  members  of  his  organization  would  be 
idle  while  the  order  was  in  force,  and  the  number  of  idle  in  the  state 
was  estimated  at  600,000  or  more.  Mr.  Hastings  added  that  while 
they  regretted  that  conditions  should  necessitate  such  an  order, 
"there  is  just  one  thing  for  us  to  do,  and  that  is  to  obey  it." 

From  Fuel  Administrator  Garfield's  explanation  of  the  necessity 
of  the  order  we  cull  the  following: 

The  most  urgent  thing  to  be  done  is  to  send  to  the  American  forces 
abroad  and  to  the  Allies  the  food  and  war  supplies  which  they  vitally  need. 
War  munitions,  food,  manufactured  articles  of  every  description,  lie  at  our 
Atlantic  ports  in  tens  of  thousands  of  tons,  while  literally  hundreds  of  ships, 
waiting,  loaded  with  war  goods  for  our  men  and  the  Allies,  can  not  take  the 
seas  because  their  bunkers  are  empty  of  coal.  The  coal  to  send  them  on 
their  way  is  waiting  behind  the  congested  freight  that  has  jammed  all  the 
terminals. 

It  is  worse  than  useless  to  bend  our  energies  to  more  manufacturing 
when  what  we  have  already  manufactured  lies  at  tidewater,  congesting 
terminal  facilities,  jamming  the  railroad  yards  and  side-tracks  for  a  long 
distance  back  into  the  country.  No  power  on  earth  can  move  this 
freight  into  the  war  zone,  where  it  is  needed,  until  we  supply  the  ships 
with  fuel. 

Once  the  docks  are  cleared  of  the  valuable  freight  for  which  our  men 
and  associates  in  the  war  now  wait  in  vain,  then  again  our  energies  and 


334  ECONOMICS  OF  WAR 

power  may  be  turned  to  manufacturing,  more  efficient  than  ever;  so  that  a 
steady  and  uninterrupted  stream  of  vital  supplies  may  be  this  nation's 

answer  to  the  Allies'  cry  for  help 

This  is  war.  Whatever  the  cost,  we  must  pay  it,  so  that  in  the  face 
of  the  enemy  there  can  never  be  the  reproach  that  we  held  back  from  doing 
our  full  share.  Those  ships,  laden  with  our  supplies  of  food  for  men  and 
food  for  guns,  must  have  coal  and  put  to  sea. 

2.    THE  ZONING  SYSTEM  OF  THE  UNITED  STATES' 

The  question  of  transportation  and  car  supply  at  the  mines  has 
been  perhaps  the  most  difficult  war-time  problem  with  which  the  coal 
industry  of  the  United  States  has  had  to  cope.  Traffic  congestion 
caused  by  the  extraordinary  demands  made  upon  the  railroads  by 
war  industries,  troop  movements,  etc.,  has  time  and  again  paralyzed 
the  transportation  of  coal  from  the  mines  to  the  consuming  markets. 
Conditions  have  been  most  serious  at  important  railroad  gateways 
and  terminals  like  Cincinnati,  Chicago,  and  New  York. 

The  slow  movement  of  coal  cars  in  transit  and  delays  in  returning 
empty  cars  to  the  mines,  due  in  part  to  the  general  congestion  of 
traffic  prevailing  throughout  the  country,  has  resulted  in  what  is 
generally  considered  the  most  serious  phase  of  the  coal  situation, 
viz.,  car  shortage  at  the  mines.2  This  one  factor  has  done  more  than 
all  other  causes  combined  to  keep  down  coal  production.  In  most  of 
the  coal  fields  of  the  country  coal  mines  have  been  forced  to  close 
down  for  shorter  or  longer  periods,  while  others  have  been  running 
on  short  time,  in  both  cases  involving  a  decreased  production.  This 
state  of  affairs  began  to  develop  in  the  fall  of  1916  and  has  continued 
to  become  more  serious  since  then. 

A  statement  given  out  by  the  National  Coal  Association  shows  the 
loss  in  production  of  bituminous  coal  on  account  of  car  shortage  for 
the  period  from  January  i  to  March  i,  1918,  to  have  been  31,128,000 
tons.  According  to  the  most  reliable  estimates  there  has  been  an 
average  of  at  least  100,000  miners  idle  every  day  for  six  months. 

The  experience  during  the  year  1916-17,  when  numerous  coal 
shortages  had  developed  in  different  sections  of  the  country,  relieved 
only  partly  by  priority-shipment  orders,  made  it  clear  that  unless 

1  By  William  Notz  (see  p.  323).  Adapted  from  "The  World's  Coal  Situa- 
tion, II,"  Journal  of  Political  Economy,  XXVI  (July,  1918),  682-89. 

1  ED.  NOTE. — Cf .  selection  XXXVI,  2,  p.  348,  for  an  indication  of  the  car 
situation  in  the  summer  of  1918. 


FOOD  AND  FUEL  335 

radical  changes  were  effected  with  respect  to  the  distribution  of 
bituminous  coal  the  most  serious  consequences  would  be  likely  to 
result  in  the  immediate  future.  Accordingly,  the  United  States 
Fuel  Administration,  after  prolonged  conferences  with  coal  producers, 
jobbers,  and  consumers,  and  with  traffic  and  operating  officials  of  the 
railroads,  devised  a  zone  system  for  the  distribution  of  bituminous 
coal  for  the  year  beginning  April  i,  1918. 

By  an  order  of  the  United  States  Fuel  Administrator,  dated 
March  27,1918,  the  states,  with  the  exception  of  the  Rocky  Mountain 
and  Pacific  Coast  states,  were  divided  into  fifty-seven  zones,  each  of 
which  is  restricted  to  the  use  of  coal  from  certain  producing  districts. 
The  Rocky  Mountain  and  Pacific  Coast  states  under  the  zone  system 
will  be  dependent  for  their  bituminous  coal,  except  for  special  pur- 
poses, on  coal  mined  in  Montana,  Wyoming,  Colorado,  New  Mexico, 
Utah,  Washington,  and  Oregon.  The  whole  zoning  plan  applies  only 
to  bituminous  and  cannel  coals,  and  not  to  anthracite  coal  or  coke. 
In  order  to  provide  for  consumers  who  require  illuminating  or  pro- 
ducing gas,  by-product  coking,  metallurgical  smithing,  or  other 
particular  purposes,  or  require  special  coals  which  are  not  produced 
in  the  coal  districts  from  which  the  zoning  plan  permits  shipments 
to  be  made,  special  permits  covering  such  cases  are  issued.  The  zone 
system  affects  all  bituminous  coal  except  (i)  coal  for  railroad  fuel,  for 
which  special  arrangements  are  made;  (2)  coal  for  movements  on 
inland  waterways,  which  is  in  no  way  restricted  by  the  system, 
(3)  coal  delivered  to  Canada,  which  is  subject  to  regulations  of  the 
Fuel  Administration. 

The  purpose  of  the  plan  is  to  save  transportation  by  the  elimina- 
tion of  unnecessary  long  hauls  and  avoidable  cross-hauls,  thereby 
conserving  the  car  supply  and  increasing  car  utility  and  the  production 
of  coal.  The  method  of  enforcement  of  the  zoning  system  is  simple. 
The  United  States  Fuel  Administration  prohibits  distribution  beyond 
the  limits  of  the  zone,  and  the  Railroad  Administration  supplements 
these  prohibitions  by  railroad  embargoes. 

A  statement  issued  by  the  United  States  Fuel  Administration 
in  connection  with  the  zone  order  states  that  the  general  effects  of 
the  zone  system  is  to  restrict  eastern  coal  to  eastern  markets  and  to 
fill  the  shortage  in  the  Central  and  Western  states  with  nearby  coal 
produced  in  those  states.  In  addition  to  the  saving  in  transportation 
the  system  will  provide  for  the  possible  retention  of  something  like 
s, 000,000  tons  of  coal  for  the  Eastern  states  which  heretofore  has  gone 

Of  / 


336 


ECONOMICS  OF  WAR 


West  by  rail.  It  will  eliminate  the  movement  of  more  than  2,000,000 
tons  of  Pocahontas  coal  to  Chicago  and  other  western  points  over  a 
haul  of  about  660  miles.  Chicago  is  to  obtain  this  tonnage  from 
southern  Illinois  mines  with  an  average  haul  of  312  miles.  On 
shipments  of  550,000  tons  annually  from  Kanawha  districts  to  Wis- 
consin points  it  is  planned  to  save  about  2,500,000  car  miles;  on  the 
movement  from  southeastern  Kentucky  to  Chicago  the  saving  is 
estimated  at  about  800,000  car  miles,  and  the  elimination  of  the 
Indiana  to  Iowa  movement  will  save  1,600,000  car  miles.  The 
movement  of  approximately  300,000,000  tons  of  bituminous  coal,  or 
60  per  cent  of  the  total  production,  will  be  regulated  by  the  zone 
system. 

3.    THE  OUTLOOK  FOR  1918-19' 


1917  Amount 

1918-19  Amount 

Percentage  of 
Increase  1918-19 
over  1917 

Industrial  

204,907,000 
66,915,000 

33,038,000 

155,000,000 
24,000,000 

52,450,000 
7,700,000 

5,000,000 
1  1  ,000,000 

242,024,000 
75,678,000 
37,941,000 
166,000,000 
24,000,000 
52,450,000 
10,000,000 

5,000,000 
12,500,000 

18 
13 
15 
7 
o 
o 
3° 

o 
14 

Domestic    

Gas  and  electric  utilities  

Railroads                  

Exports  

Beehive  coke  

Bunker  —  foreign  

Bunker  —  domestic,     including     Great 
Lakes                  ...       

Used  at  coal  mines  for  steam  and  heat 
Total  

560,010,000 
5,282,000 

625,594,000 

2,000,000 
7,OOO,OOO 

12 
14.4 

Used  from  storage  4,375,000 

Exports                 907,000 

Estimated  production  

554,728,000 

Substitution  of  coal  for  oil,  mainly  in 
West       

To  increase  stocks  of  industrial  plants 
and  public  utilities  outside  of  New 
England  by  ten  days'  supply  

Total  requirements  for  1918  with- 
out   allowance     for     estimated 
conservation  

s 

634,594,000 
554,728,000 

Production  1917  

Increase  required  

79,866,OOO 

1  This  table,  compiled  by  the  United  States  Fuel  Administration,  shows  the 
estimated  consumption  in  net  tons  of  bituminous  coal  during  the  coal  year  1917 
and  the  estimated  requirements  for  the  present  coal  year. 


FOOD  AND  FUEL  337 

XXXII.     Competition  versus  Efficiency  in  Mining  Coal1 

Bituminous  coal  mining  as  an  industry  is  beset  by  conditions 
which  are  the  occasion  of  present  wastefulness  and  the  justification  of 
apprehension  for  the  future.  Scattered  and  unorganized,  most  of 
the  individual  companies  are  small  and  financially  weak;  no  adequate 
cooperation  in  engineering  practice  exists;  new  developments  are 
slow  of  growth;  coal  is  mined  for  the  most  part  by  conservative,  long- 
established  practice.  With  no  methods  of  storage  developed,  the 
average  mine  can  mine  coal  only  when  railroad  cars  stand  ready  to 
receive  it;  a  fluctuating  demand,  accentuated  by  seasonal  variation, 
leads  to  instability  of  operations;  many  mines  in  normal  times  must 
close  down  in  slack  periods,  with  destructive  effect  upon  the  conditions 
and  supply  of  labor.  For  years  the  price  of  coal  at  the  mine  has  been 
from  $i  to  $i .  15  a  ton,  a  figure  so  low  that  only  the  best  and  most 
easily  obtainable  coal  could  be  extracted  by  the  cheapest  methods  of 
mining,  irrespective  of  the  waste  involved;  the  tonnage  of  thin-seam 
and  high-cost  areas  sacrificed  in  the  process  amounts  to  more  than  half 
the  total  coal  produced  to  date.  Many  districts  have  been  burdened 
with  a  leasing  system  that  obligated  the  company  to  remove  a  given 
tonnage  each  year,  irrespective  of  market  demand  or  price,  with  the 
result  that  the  richest  spots  were  drawn  from  seam  after  seam  with 
irretrievable  loss  to  future  needs.  Miners'  unions  in  general  have 
fixed  wages  on  the  basis  of  thick  and  easily  worked  seams  and  imposed 
such  severe  penalties  upon  inferior  conditions  that  the  operator  is 
precluded  from  introducing  new  and  improved  methods. 

The  bituminous  industry  deals  with  a  necessity  that  is  lending 
itself  less  and  less  to  competitive  production.  Competition  is  incom- 
patible with  economy,  because  coals  expensive  to  mine  cannot  compete 
on  a  commercial  basis  with  those  which  may  be  mined  cheaply,  and 
the  two,  in  general,  occur  in  such  intimate  association  that  the  first, 
under  present  conditions,  must  be  sacrificed  in  order  to  get  the  second. 
If  the  price  is  arbitrarily  fixed  high  enough  to  cover  the  extraction 
of  high-cost  coal,  society  will  pay  too  much  for  low-cost  coal.  If,  on 
the  contrary,  the  price  is  allowed  to  seek  a  natural  level,  the  high-cost 
coal  cannot  be  extracted  and  much  of  it  becomes  permanently  lost. 

1  By  Chester  G.  Gilbert  and  Joseph  E.  Pogue.  Adapted  from  "Coal:  The 
Resource  and  Its  Full  Utilization,"  Smithsonian  Institution,  United  States  National 
Museum  Bulletin  102,  Part  4,  pp.  20-25. 

ED.  NOTE. — Messrs.  Gilbert  and  Pogue  are  associated  with  the  Division  of 
Mineral  Technology  of  the  United  States  National  Museum, 


338  ECONOMICS  OF  WAR 

It  may  be  asserted  that  we  should  use  up  the  cheaply  obtainable  coal 
first,  and  then  later,  when  necessary,  turn  to  the  coal  more  expensive 
to  produce.  Such  would  be  advisable  were  it  not  for  the  fact  that 
the  fat  and  the  lean  occur  intimately  mixed,  and  we  cannot  later 
return  and  glean  the  unused  values.  This  limitation  is  set  by  the 
geological  occurrence  of  coal  and  cannot  be  changed.  The  only 
way  by  which  coal  can  be  mined  effectively  is  for  the  price  to  be 
adjusted  to  the  mining  costs  of  each  mine,  and  even  to  those  of  dif- 
ferent parts  of  the  same  mine.  Obviously  this  would  require  a  pooling 
of  interests — in  short,  integration. 

Bituminous  coal,  therefore,  is  a  necessity  which  cannot  be  pro- 
duced advantageously  under  competitive  operation.     It  has  become' 
by  its  very  nature  a  public  utility,  and  its  administration  as  such,  with 
integrated  activity,  is  the  only  practicable  way  by  which  its  full 
service  can  be  secured. 

While  the  price  of  coal  to  the  consumer  has  been  too  high,  the  price 
of  coal  at  the  mine  has  been  so  low  that  it  has  been  a  small  factor  in 
the  ultimate  cost  to  the  public.  That  is  evident  in  the  contrast 
between  one  dollar  and  the  figure  the  consumer  pays.  The  price  of 
coal  at  the  mine  mouth,  however,  has  been  slowly  advancing;  the 
upward  tendency  is  natural  and  if  left  to  itself  will  become  stronger 
and  stronger  as  more  and  more  of  the  easy-to-get  coal  is  mined.  At 
the  present  moment  the  price  at  the  mine  is  low  because  of  the 
apparent  abundance  of  easy-to-get  coal;  but  within  a  few  years  (if 
not  already),  with  the  exhaustion  of  cheaply  mined  coal,  the  mining 
costs  are  bound  to  attain  a  rank  more  consequential  in  effect  upon  the 
ultimate  price.  It  is  even  now  very  generally  conceded  that  the 
"day  of  cheap  coal  is  over."  While  integrated  mining  would  add 
slightly  to  the  average  ton  cost  of  coal  at  the  time,  the  effect  would 
be  to  relieve  the  further  upward  tendency  from  the  acute  increase 
which  present  conditions  will  inevitably  create.  The  result,  in  fine, 
will  be  to  prolong  to  the  utmost  the  period  of  cheap  coal. 

The  advantages  of  integration  in  coal  production  are  well  known 
in  other  countries.  The  thin  seams  of  the  eastern  coal  fields  of 
Canada  can  be  worked  only  under  a  cooperative  system,  as  pointed 
out  by  the  Canadian  Department  of  Mines.  Belgian  mining  law 
imposes  the  obligation  of  cooperative  measures  upon  the  coal-mining 
concessionaire.  Cooperative  coal  marketing  has  been  successfully 
practiced  in  many  parts  of  the  world,  notably  in  Germany  and  in 
the  Transvaal. 


FOOD  AND  FUEL  339 

In  short,  coal  as  a  resource  demands  cooperative  measures  of 
development.  This  is  true  of  coal  in  peculiar  degree  and  holds  equally 
for  no  other  resource.  The  reason  is  twofold.  In  the  first  place,  coal 
deposits  do  not  lend  themselves,  as  do  many  other  types  of  mineral 
deposits,  to  a  graded  extraction  of  values  according  to  the  strength 
of  economic  demand.  In  the  second  place,  coal  as  the  major  source 
of  power  is  the  basis  of  modern  life,  and  as  such  imposes  upon  organized 
society  a  direct  responsibility  to  insure  its  most  effective  disposition. 

The  wastes  in  mining  may  be  decreased  through  integrated  opera- 
tions. The  wastes  in  distribution  may  be  reduced  through  the 
development  of  hydro-electric  power,  thus  relieving  coal  of  unneces- 
sary duties,  and  by  improvements  in  utilization,  thus  destroying  the 
over-dependence  upon  high-grade  coals  which  now  necessitates  undue 
haulage. 

The  wastes  in  utilization  may  be  done  away  with  by  establishing 
a  method  of  separating  the  energy-producing  constituents  of  coal  from 
the  commodity  values  and  using  the  products  to  their  common 
advantage.  The  most  logical  point  of  attack  is  the  municipality,  to 
which  may  be  attached  a  public-utility  plant  converting  raw  coal  into 
smokeless  fuel — artificial  anthracite  plus  gas,  or  gas  alone— and 
valuable  by-products,  ammonia,  benzol,  and  tar.  Such  a  plant  would 
supply  the  fuel  needs  of  the  community  and  ship  the  surplus  by- 
products to  serve  as  raw  material  for  a  coal-products  industry, 
developed  thereby  to  proportions  consistent  with  its  importance  to 
social  progress. 

By-product  utilization  will  give  cheaper  fuel  through  the  advan- 
tageous disposition  of  all  the  values  contained.  It  will  also  end  the 
smoke  nuisance,  relieve  transportation,  and  cause  the  growth  of  a 
great  coal-products  industry  with  ultimate  possibilities  ranging  beyond 
the  grasp  of  the  imagination. 

This  paper  does  not  presume  to  set  forth  the  exact  methods 
whereby  these  results  may  be  attained;  the  procedures  remain  to  be 
worked  out  in  detail.  Its  purpose,  however,  has  been  to  present  a  line 
of  attack,  drawn  up  on  the  basis  of  the  character  and  extent  of  the 
resource,  which  may  be  followed  to  specific  advantage.  There  are 
no  serious  technical  obstacles  in  the  way;  the  chief  requisite  for 
progress  is  a  popular  appreciation  of  the  fact  that  coal  contains 
greater  values  than  society  is  getting  from  it.  From  this  realization 
will  spring  a  public  demand  that  scientific  and  technical  knowledge 
be  used,  not  merely  in  making  improvements  in  the  details  of  present 


340  ECONOMICS  OF  WAR 

practice,  but  in  revising  that  practice  itself  and  shaping  a  policy  of 
administration  more  in  keeping  with  what  is  known  to  be  the 
potentiality  of  coal. 

XXXIII.     Coal  and  Electricity  in  Double  Harness1 

The  actual  amount  of  energy  which  we  get  in  driving  power  from 
a  ton  of  coal  with  the  most  up-to-date  methods  of  combustion  and 
utilization  of  heat  or  gas  is  a  very  small  percentage  of  what  is  obtain- 
able theoretically. 

Eminent  scientists  have  suggested  that  we  should  convert  our 
coal  into  gas  at  the  pit-mouth  and  convey  it  thence  by  pipe-line  to 
wherever  it  may  be  required.  This  would,  no  doubt,  save  an  immense 
amount  of  transportation  and  handling  of  coal,  with  the  accompanying 
expense  and  loss;  but  we  have  yet  to  learn  whether  questions  of 
pressure  and  other  conditions  connected  with  coal-gas  would  permit 
of  its  being  practicable,  safe,  and  commercially  profitable  for  long 
distances  and  wide  areas.  It  seems  more  likely  that  the  conversion 
of  coal  into  electric  current  in  close  proximity  to  the  mine  would  yield 
better  results,  a  more  flexible  and  safer  method  of  transmission  and 
distribution  for  long  distances,  and  more  useful  forms  of  power, 
warmth,  and  illumination  than  those  obtainable  from  the  combustion 
of  gas. 

In  this  connection,  the  interim  report  recently  made  to  the 
Ministry  of  Reconstruction  in  Great  Britain  by  the  Coal  Conservation 
Sub-Committee  is  full  of  suggestion  and  significance.  The  British 
Sub-Committee  proposes  to  supply  all  industries  with  electrical  power 
generated  at  large  "super-power  stations" — not  more  than  sixteen 
in  number  for  the  whole  country — and  to  eliminate  or  combine  all 
smaller  stations. 

The  primary  object  of  the  scheme  is  to  economize  the  coal  supplies. 
The  amount  of  coal  used  in  the  United  Kingdom  for  the  production 
of  power  is  80,000,000  tons  at  a  cost  of,  say,  £40,000,000  at  the  pit- 
head. The  Committee  confidently  states  that  by  an  up-to-date  and 
national  scheme  of  electrification  53,000,000  tons  of  this  (£27,000,000) 
a  year  could  be  saved.  This,  with  a  saving  of  the  by-products  now 
wasted  by  the  burning  of  coal  in  open  grates  and  boiler  furnaces, 
would  effect  a  national  economy  of  £100,000,000  a  year.  The  most 
economical  way  of  obtaining  power  from  coal  on  a  large  scale  is  by 

1  Adapted  from  "Coal  and  Electricity  in  Double  Harness,"  Scientific  American 
(May  4,  1918),  pp.  408,  418,  and  419. 


FOOD  AND  FUEL  341 

generating  electricity  from  it.  The  coal  now  used,  says  the  Com- 
mittee, would,  if  used  economically,  produce  at  least  three  times  the 
present  amount  of  power. 

It  has  been  settled  conclusively  during  the  past  fifteen  years  that 
the  most  economical  means  of  applying  power  to  industry  is  the  electric 
motor.  In  the  factories  put  down  for  the  production  of  munitions 
during  the  war  95  per  cent  of  the  machinery  is  driven  by  electricity, 
and  it  is  only  a  question  of  time  for  all  power  to  be  applied  in  this  way. 
The  problem  is  not  how  to  apply  electric  power,  but  how  best  to 
generate  it.  The  development  of  electricity  has  been  hindered  by 
the  multiplicity  and  the  smallness  of  the  electrical  undertakings.  At 
the  present  time  the  supply  of  electricity  in  Great  Britain  is  split  up 
among  about  600  companies  and  municipal  undertakings.  The 
average  generating  capacity  of  such  of  these  undertakings  as  possess 
power  stations  is  only  5,000  horse-power,  or  about  one-fourth  of  the 
capacity  of  one  single  generating  machine  of  economical  size,  and 
about  one-thirtieth  of  that  of  a  power  station  of  economical  size. 
Technically  and  commercially  the  big  generating  station  is  admittedly 
the  best.  The  reform  proposed  by  the  Committee  is  to  supersede 
all  these  small  undertakings  by  laying  down  throughout  Great  Britain 
main  trunk  lines  to  be  fed  by  some  sixteen  "  super-power  stations." 

The  generating  machines  in  these  stations  should  be  of  large  size, 
not  less  than  20,000  horse-power  each.  In  more  important  industrial 
districts  machines  of  as  much  as  50,000  horse-power  might  be  used 
with  even  greater  advantage.  The  generating  stations  should  be  on 
large  sites,  with  ample  coal  and  water  transport  facilities.  It  is 
contemplated  that  at  each  generating  station  by-products  be  extracted 
from  the  coal  before  it  is  used  for  the  production  of  power,  and  that 
various  electro-chemical  processes  essential  to  British  industry  be 
carried  on  near  by.  The  sites  for  the  stations  must  be  outside,  not 
inside,  towns.  This  would  improve  the  health  of  the  great  industrial 
centers  by  the  reduction  of  smoke  and  would  relieve  the  congestion  of 
the  railway  lines  in  their  neighborhood  by  practically  abolishing  the 
carriage  of  coal. 

There  already  exists  in  England  a  practical  example  of  centralized 
production  in  electricity  for  a  large  area.  The  northeast  coast 
district,  rather  larger  in  area  than  Lancashire,  is  served  by  a  group 
of  power  companies  from  one  interconnected  electrical  system.  The 
population  of  this  area  is  less  than  that  of  Lancashire,  and  the  area  is 
therefore  less  advantageous  for  electrical  supply.  But,  whereas  in 


342  ECONOMICS  OF  WAR 

Lancashire,  with  its  multiplicity  of  electrical  undertakings,  the  price 
per  unit  for  electric  power  varies  from  a  penny  to  two  pence  or  more, 
the  average  price  paid  in  the  northeast  coast  district  is  less  than  a 
half-penny  a  unit,  and  the  use  of  electric  power  per  head  of  population 
is  three  times  as  great.  A  great  saving  of  coal  and  reduction  of  smoke 
has  resulted.  Apart  from  the  electric-power  companies'  consumption, 
practically  no  coal  is  burnt  on  the  Tyne  for  power  purposes  except  by 
the  railways  and  some  collieries.  The  Tyne  shipyards  may  be  said 
to  have  adopted  electricity  to  the  exclusion  of  all  other  forms  of  power. 
As  a  result  of  the  adoption  of  electric  traction  on  the  suburban  railways 
the  traffic  facilities  of  the  district  are  greater  than  those  of  any  other 
district  of  similar  size.  New  industries  have  been  established  in  the 
district  solely  on  account  of  the  cheap  electric  power  available.  Waste 
heat  and  gases  have  been  extensively  used  for  the  production  of 
electricity,  so  that  electric  power  is  produced  as  a  by-product  of  two 
of  the  largest  local  industries — the  making  of  pig-iron  and  coke. 
These  local  generating  stations  are  commonly  called  "waste-heat 
stations."  The  first  was  erected  in  1905,  and  there  are  now  n  at 
work. 

The  Committee  foresees,  as  a  result  of  a  national  system  of 
electric-power  supply,  a  great  increase  of  the  use  of  electricity  for  all 
purposes,  with  many  advantageous  results.  Factory  chimneys 
would  gradually  disappear.  Railways  would  be  electrified,  even  for 
the  haulage  of  goods  trains.  Smoke  would  disappear  from  towns, 
and  coal  wagons  need  run  no  farther  than  to  the  electric-power 
stations.  Electric  light  would  be  cheap  enough  for  the  poorest,  and 
there  would  be  a  large  increase  in  the  use  of  electric  heat  and  power 
for  household  purposes. 

As  showing  the  importance  of  the  scheme  the  report  says: 

It  is  scarcely  possible  to  exaggerate  the  national  importance  of  a 
technically  sound  system  of  electricity  supply,  because  it  is  essentially  one 
with  the  problem  of  the  industrial  development  of  the  country.  The 
development  of  such  a  power  system  may  be  likened  to  the  development  of 
the  railways  of  a  country,  and  it  is  just  as  impossible  to  secure  economical 
power  generation  and  supply  by  each  municipal  area  working  independently 
(which  is  the  position  today)  as  it  would  be  to  have  an  efficient  railway 
system  if  each  municipal  area  owned  its  own  lines  and  long-distance  trans- 
port were  provided  for  by  traffic  and  operating  agreements.  History  shows 
that  in  the  early  stages  of  railway  development  exactly  the  same  process 
of  amalgamation  had  to  be  gone  through. 


IX 

TRANSPORTATION 

Introduction 

The  two  great  means  of  transport — railways  and  ships — are 
furnishing  in  this  war  the  greatest  examples  of  modified  state  socialism 
which  this  country  has  yet  seen.  As  to  the  general  way  in  which  they 
are  controlled  these  two"  services  show  a  fairly  close  family  resem- 
blance, though  the  forms  of  organization  are  technically  quite  dif- 
ferent. The  larger  railroads  and  the  larger  ships  have  been,  taken 
possession  of  by  the  federal  government  and  are  being  operated  by 
the  same  people,  in  general,  who  operated  them  before,  but  under 
orders  of  the  Railroad  Administration  and  the  Shipping  Board 
respectively.  New  ships  and  new  railroad  equipment  are  built  on 
plans  made  under  federal  direction,  and  in  both  cases  the  output  is 
being  largely  standardized.  The  heads  of  the  Shipping  Board  and 
the  Emergency  Fleet  Corporation  are  men  drawn  from  private  busi- 
ness, while  the  regional  directors  of  the  railroad  regions  and  the  federal 
managers  of  the  separate  roads  are  railroad  men,  usually  managing 
their  own  roads,  under  the  government's  direction.  Thus  in  both 
cases  private  enterprise  has  furnished  the  traditions  and  training  of 
the  personnel  that  is  making  this  experiment  in  socialism. 

Besides  the  points  of  likeness  there  are  differences  between  the  two 
services.  In  the  case  of  shipbuilding,  the  industry  has  been  virtually 
re-created,  so  great  has  been  the  expansion  and  the  revolution  in 
methods.  In  the  case  of  railroads  the  emphasis  is  on  the  task  of 
utilizing  an  existing  and  limited  plant  to  its  utmost  capacity  for  war 
purposes,  while  such  new  construction  as  can  be  completed  quickly 
enough  to  be  of  use  in  the  present  emergency  can  be  handled  by  exist- 
ing plants  and  existing  methods.  Another  difference  is  that  new  cars 
and  locomotives  are  necessarily  used  by  existing  railroad  organiza- 
tions, while  new  ships  built  by  the  Emergency  Fleet  Corporation  are 
not  turned  over  to  pre-war  shipping  organizations.  Great  numbers 
have  been  turned  over  to  the  army  transport  service. 

It  is  too  early  to  draw  any  but  the  most  tentative  conclusions 
from  our  experience  in  these  enterprises.  The  possibilities  of 

343 


344  ECONOMICS  OF  WAR 

standardization  will  have  a  try-out  on  a  vast  scale,  and  we  may  learn 
how  to  make  gains  without  losing  all  elasticity  and  chance  for  personal 
preference.  It  will  take  time,  however,  to  show  whether  or  not 
standardization  means  stagnation  in  the  long  run,  through  increasing 
the  resistance  to  improvements.  The  gauge  of  railroads  must  of 
necessity  be  standardized,  and  it  has  not  changed  since  the  first 
uniform  gauge  was  adopted.  Perhaps  4  feet  8|  inches  is  still  the  best 
gauge,  even  though  locomotives  have  grown  fifty  or  a  hundred  fold  in 
weight,  but  as  we  have  had  no  roads  using  different  gauges,  it  is 
impossible  to  prove  anything  either  way. 

Curiously  enough,  when  the  question  is  raised  whether  govern- 
ment operation  of  railroads  will  be  permanent,  the  first  thought  seems 
often  to  be,  not  whether  this  would  be  desirable,  but  whether  or  not 
it  is  inevitable.  Certainly  it  is  not  easy  to  suppose  that  we  shall  go 
back  to  pre-war  conditions,  for  these  represented  really  a  transition 
stage  and  were  anything  but  satisfactory.  Between  labor,  the 
companies,  and  the  state  and  federal  governments  the  real  control  was 
anything  but  unified,  and  it  is  natural  in  such  a  case  for  each  party 
to  be  ready  to  blame  the  others  for  bad  conditions  and  not  to  strive 
with  the  same  whole-hearted  determination  to  get  results  in  the  face  of 
discouraging  conditions.  Be  that  as  it  may,  the  roads  were  under- 
equipped  at  the  outbreak  of  the  war  and  claimed  that  they  could  not 
finance  extensions  unless  rates  were  very  considerably  raised,  while 
a  disastrous  strike  had  recently  been  averted  by  a  special  act  of 
Congress  granting  the  demands  of  the  strikers.  Altogether  our 
system  of  control  appeared  to  have  reached  a  crisis. 

The  return  of  the  properties  to  the  companies  should  be  taken 
advantage  of  to  settle  the  standing  of  the  companies  in  clear  and 
definite  terms.  For  example,  the  question  of  the  companies'  right 
to  a  return  on  investments  made  out  of  income  could  be  settled,  and 
any  settlement  of  such  a  question  would  be  better  than  none,  since 
the  other  factors  in  the  problem  would  adjust  themselves  to  whatever 
rule  might  be  laid  down.  As  for  permanent  lessons,  it  is  doubtful 
if  the  war  can  teach  us  much  about  even  such  an  elemental  thing  as 
the  effect  of  government  guaranty  of  the  returns  of  private  com- 
panies; for  men  work  very  differently  when  they  feel  themselves 
actively  enlisted  in  serving  their  country  at  war. 

We  are  discovering  that  "morale"  is  no  less  important  in  indus- 
tries than  in  armies,  and  we  have  also  discovered  that  the  traditions 
and  morale  of  the  familiar  type  of  government  bureau,  and  those 


TRANSPORTATION  345 

which  have  been  associated  with  private  enterprise,  with  or  without 
state  control,  are  all  far  from  perfect.  The  present  combination, 
where  men  with  the  initiative  and  drive  characteristic  of  private 
enterprise  are  commissioned  as  servants  of  the  nation  (rather  than 
controlled  by  outside  commissions),  seems  to  be  in  many  respects  the 
best  compromise  we  have  yet  seen.  For  the  future  our  problem  may 
be  how  to  infuse  the  morale  of  public  service  into  organizations  which 
shall  still  preserve  the  traditional  initiative  of  private  enterprise,  so 
that  industry  may  be  in  essence  a  branch  of  public  service,  while 
keeping  the  advantages  of  private  industry  in  form  of  organization, 
incentives,  and  rewards.  It  is  not  at  all  certain  that  any  organization 
can  combine  these  qualities,  but  experiments  may  well  yield  some- 
thing better  than  we  have  had  in  the  past. 

XXXIV.     Great  Britain's  Example1 

On  the  same  day  that  war  was  declared  (August  4,  1914)  the 
railways  of  England,  Wales,  and  Scotland — not  Ireland — were  taken 
over  by  the  government.  The  managers  opened  their  sealed  instruc- 
tions and  proceeded  to  carry  them  out.  It  had  been  provided  in  the 
act  of  1871  that  full  compensation  should  be  paid  to  the  owners  for 
any  loss  incurred.  The  government,  however,  did  not  at  the  begin- 
ning announce  any  terms  with  the  companies.  This  was  left  for  a 
later  date.  Government  control,  it  is  important  to  note,  did  not  mean 
government  ownership.  The  lines  remained  the  property  of  the 
companies.  They  retained  the  management  of  their  own  concerns, 
subject  to  the  instructions  of  the  executive  committee,  and  the  whole 
machinery  of  administration  went  on  as  before.  The  sole  purpose 
at  the  beginning  was  to  facilitate  the  movements  of  troops.  But  as 
the  war  developed,  as  economy  became  more  and  more  essential,  the 
scope  of  the  Railway  Executive  Committee,  now  in  supreme  control, 
became  greatly  extended. 

Working  in  co-operation  with  the  acting  chairman  were  12  general 
managers  of  leading  British  lines.  Under  the  central  body  were 
groups  of  committees,  each  made  up  of  railway  experts.  The  War 
Office  and  the  Director  General  of  Transport  were  in  touch  with  the 

1  By  F.  A.  McKenzie.  Adapted  from  "The  British  Railways  under  Govern- 
ment Control,"  Railway  Age  Gazette  (December  21,  1917),  pp.  1118-21. 

ED.  NOTE. — F.  A.  McKenzie  (1869 — )  is  one  of  the  leading  English  writers 
on  the  war. 


346  ECONOMICS  OF  WAR 

Central  Committee.  There  was  a  constant  interchange  of  ideas,  but 
from  the  beginning  there  was  no  attempt  to  supersede  the  railway  men 
in  carrying  out  their  work. 

Under  the  terms  on  which  the  railways  were  taken  over  for  the 
period  of  the  war  the  government  guaranteed  to  the  proprietors  of 
the  railways  that  their  net  revenue  should  be  the  same  as  in  1913, 
except  when  the  net  receipts  for  the  first  half  of  1914  were  less  than  the 
"first  half  of  1913;  in  that  case  the  sum  payable  was  to  be  reduced  in 
the  same  proportion.  The  entire  government  traffic — men  and 
freight — was  to  be  carried  without  any  direct  charge  being  made  for 
it  or  any  accounts  rendered.  This  plan  was  considered  satisfactory 
by  both  sides.  In  the  majority  of  cases  there  had  been  a  reduction  of 
earnings  in  the  first  half  of  1914  over  the  previous  half-year,  and 
companies  were  contemplating  a  still  further  reduction.  The  interests 
of  their  shareholders  being  assured,  they  were  able  to  devote  them- 
selves to  the  work  of  economical  and  efficient  distribution,  quite  apart 
from  the  usual  financial  problems.  The  one  weak  side  of  this  agree- 
ment was  that  it  made  no  allowance  to  cover  increased  interest  pay- 
ments on  account  of  new  investments  and  new  capital  expenditure 
since  the  war  began.  This  point  was  afterward  met  by  an  arrange- 
ment that  the  government  should  pay  interest  at  4  per  cent  on  all  new 
capital  invested  by  the  railways  since  August  4,  1914,  on  new  lines, 
branches,  terminals,  equipment,  or  other  facilities  put  into  use  since 
January  i,  1913. 

The  conclusion  of  the  financial  agreement  between  the  govern- 
ment and  the  companies  automatically  brought  about  a  great  economy 
in  the  system  of  railway  accounts.  The  reports  of  the  companies  were 
cut  down  to  a  bare  minimum,  and  in  many  cases  even  these  reduced 
reports  were  not  sent  to  the  shareholders  unless  they  specially  asked 
for  them. 

Among  the  most  important  economies  in  handling  traffic  was, 
first,  the  establishment  of  the  common-user  of  railway  companies' 
open  goods  wagons.  Under  the  old  system  the  wagon  received  loaded 
by  one  company  from  another  had  to  be  promptly  returned  to  the 
owning  line  even  though  there  was  no  freight  for  it  on  its  return. 
Under  the  common-user  arrangement  it  became  available  for  loading 
in  any  direction,  thus  reducing  the  haulage  of  empty  vehicles  to  a 
minimum.  This  system  of  pooling  luggage  cars  came  into  force  on 
January  2,  1917. 


TRANSPORTATION  347 

XXXV.    The  Task  of  American  Railroads1 

Director-General  McAdoo  commands  an  army  larger  than  Persh- 
ing's  army  in  France,2  and  second  only  in  size  and  importance  to  our 
entire  military  force  on  both  sides  of  the  Atlantic.  The  army  of 
railroad  employees  numbered  in  1916  nearly  a  million  and  two- thirds, 
and  if  it  were  to  lose  its  fight  against  the  difficulties  of  war-time  traffic 
the  military  army  would  be  crippled  and  the  war  would  be  lost.  The 
demand  for  transportation  has  been  so  great  that  the  roads  could  not 
meet  all  of  it,  though  they  carried  more  freight  in  1916  and  1917  than 
ever  before.  The  character  of  the  war  demand,  however,  has  been 
even  more  exacting  than  the  amount  of  it: 

(i)  Export  business  enormously  increased,  at  the  same  time  that 
ship  sailings  became  fewer,  more  irregular,  and  guarded  with  a  veil  of 
secrecy.  Hence  freight  piled  up  in  the  ports  till  cars  could  not  be 
unloaded,  and  the  roads  lost  the  use  of  cars  and  of  the  yard  space  they 
occupied.  (2)  Much  coastwise  shipping  was  diverted  to  transatlantic 
service,  leaving  the  railroads  to. haul  the  freight  (largely  coal)  that 
had  formerly  gone  by  water.  Water  carriage  between  our  eastern  and 
western  seaboards  virtually  ceased,  throwing  more  transcontinental 
traffic  upon  the  railroads.  (3)  War  orders  were  largely  concentrated 
in  the  manufacturing  section  of  the  country,  including  Pennsylvania 
and  states  north  and  east,  where  railroad  traffic  is  already  densest. 
This  condition  was  aggravated  at  the  start  by  the  lack  of  systematic 
cataloguing  of  the  manufacturing  possibilities  of  different  sections  and 
the  lack  of  administrative  machinery  for  diffusing  orders  as  much  as 
possible.  (4)  The  large  profits  on  war  orders  tempted  shippers  to 
disregard  demurrage  charges  and  use  cars  for  storage,  while  the 
general  confusion  led  to  ordering  many  things  long  before  they  could 
possibly  be  used.  (5)  Troop  movements  are  irregular  and  call  for  large 
amounts  of  rolling  stock  at  certain  times  and  places,  but  generally 
furnish  little  or  no  return  load.  Thus  the  difficulties  of  the  railroads' 
task  have  been  out  of  proportion  to  its  magnitude. 

1  An  editorial. 

a  That  is,  at  the  time  this  was  written. 


348  ECONOMICS  OF  WAR 

XXXVI.    The  Roads  in  Private  Hands 
i.    UNDER  THE  RAILROADS'  WAR  BOARD1 

On  April  5,  the  day  before  war  was  declared,  Franklin  K.  Lane, 
Secretary  of  the  Interior,  introduced  and  had  passed  by  the  Council 
of  National  Defense  the  following  resolution: 

Resolved,  That  Commissioner  Willard  be  requested  to  call  upon  the 
railroads  to  organize  their  business  so  as  to  lead  to  the  greatest  expedition 
in  the  movement  of  freight. 

Acting  in  accordance  with  this  resolution,  the  principal  railroad 
executives  of  the  country  met  in  Washington  on  April  n,  1917,  and 
resolved  that  during  the  war  they  would  coordinate  their  operations 
in  a  continental  railway  system,  merging  during  such  period  all  their 
merely  individual  and  competitive  activities  in  the  effort  to  produce  a 
maximum  of  national  transportation  efficiency.  The  direction  of  the 
continental  railway  system  thus  organized  was  placed  by  the  railroads 
in  the  hands  of  the  executive  committee  of  the  Special  Committee 
on  National  Defense  of  the  American  Railway  Association.  This 
executive  committee  was  also  known  as  the  Railroads'  War  Board. 

Under  this  resolution  the  railroads  of  the  United  States  continued 
to  be  operated  under  private  ownership  and  private  management 
until  December  28,  1917. 

2.    ACCOMPLISHMENTS   UNDER   PRIVATE  OWNERSHIP2 

Approximately  complete  statistics  of  freight  movement  during 
the  first  six  months  after  the  United  States  entered  the  war — that  is, 
April  to  September,  inclusive — which  have  been  compiled  by  the 
Bureau  of  Railway  Economics  for  the  Railroads'  War  Board,  disclose 
that  in  that  period  the  railways  not  only  handled  far  more  traffic  than 
in  any  earlier  six  months  of  their  history,  but  also  as  much  as  in  any 
entire  year  prior  to  1907. 

'By  Max  Thelen.  Adapted  from  "Federal  Control  of  Railroads  in  War 
Time,"  Annals  of  the  American  Academy  of  Political  and  Social  Science,  LXXVI 
(March,  1918),  16-21.  Copyright  by  the  American  Academy  of  Political  and 
Social  Science,  1918. 

ED.  NOTE. — Mr.  Thelen  is  a  prominent  railway  attorney  and  chairman  of 
the  War  Committee  of  the  National  Association  of  Railway  and  Utilities  Com- 
missioners. 

3  Adapted  from  "An  Unprecedented  Six  Months'  Record,"  Railway  Age 
Gazette,  LXIII,  No.  25  (December  21,  1917),  p.  1112. 


TRANSPORTATION  349 

It  will  be  recalled  that  the  years  1906  and  1907  marked  the  climax 
of  a  long  period  of  rapid  increase  of  railroad  business  which  resulted 
in  the  longest  and  most  acute  congestion  of  traffic  and  "shortage" 
of  cars  ever  known  until  recent  months.  It  is  therefore  not  without 
significance  that  in  the  first  six  months  of  1917,  after  the  country 
entered  the  war,  the  railways  handled  as  much  freight  as  they  did 
in  the  entire  year  1906. 

In  1915  the  railways  handled  only  30  per  cent  more  freight  than 
in  1906,  while  in  1917  they  are  handling  approximately  100  per  cent 
more  than  they  did  in  1906.  These  facts  illustrate  not  only  the  enor- 
mous increase  which  has  occurred  in  railway  freight  business  during 
the  past  eleven  years,  but  also  how  swiftly  the  bulk  of  the  increase 
has  come  within  the  last  two  years. 

It  is  interesting,  as  indicating  the  increase  in  the  efficiency  of 
railroad  operation  which  has  occurred  since  1906,  to  note  that  in  that 
year  the  average  freight  train  load  was  only  344  tons,  as  compared 
with  the  record  of  675  tons  per  train  made  in  the  months  April  to 
September.  If  the  railroads  had  moved  the  traffic  of  these  six  months 
of  1917  in  the  same  average  train  load  as  they  handled  the  freight  of 
1906,  they  would  have  had  to  render  in  these  six  months  about  96 
per  cent  more  freight-train  service  than  they  actually  did  render. 

The  economy  effected  by  this  increase  of  the  average  train  load, 
and  the  resulting  saving  of  freight-train  service,  is  the  only  thing 
which  has  enabled  the  railway  system  of  the  country  to  remain 
solvent  in  the  face  of  almost  stationary  freight  and  passenger  rates 
and  enormously  increasing  expenses  of  all  kinds.  Of  course  economies 
have  been  effected  by  other  means  than  increases  of  the  train  load, 
but  it  is  by  this  means  that  the  really  big  saving  has  been  made. 

3.    REASONS  FOR  A  CHANGE1 

Probably  the  most  far-reaching  action  with  reference  to  transpor- 
tation taken  by  public  authority  in  a  generation  or  more  has  been  the 
President's  proclamation  on  December  26,  directing  the  practical 
transfer  of  the  railroads  of  the  country  to  government  control.  The 
course  thus  determined  upon  follows  the  publication  of  the  findings 
of  the  Interstate  Commerce  Commission  on  December  5,  wherein 
it  is  set  forth,  in  reply  to  the  roads'  plea  for  higher  rates,  that  such 
higher  rates  would  not  materially  assist  their  present  condition. 

1  Adapted  from  "Washington  Notes,"  Journal  of  Political  Economy,  XXVI 
(1918),  p.  91. 


350  ECONOMICS  OF  WAR 

From  the  standpoint  of  the  government  three  principal  reasons  are 
seen  for  the  taking  over  of  the  lines: 

1.  The  avoidance  of  obstructions  to  transportation  due  to  the 
routing  and  division  of  freight,  intended  to  give  a  fair  share  to  each 
line  in  a-  given  territory. 

2.  The  abolition  of  preferences  to  given  shippers  and  kinds  of 
freight,  and  the  centralization  of  control  over  priority  in  shipment. 

3.  The  practical  termination  of  rate  controversies  and  labor 
discussions  as  between  private  individuals  and  the  placing  of  the  roads 
on  a  semi-military  basis. 

The  railroads  themselves  have  "received  the  announcement  of  the 
President's  action  with  much  greater  equanimity  than  could  have 
been  expected.  They  undoubtedly  see  in  the  step  the  following 
advantages : 

1.  Assurance  of  a  moderate  if  not  generous  income  in  a  period  of 
great  uncertainty  and  difficulty,  during  which  they  have  been  caught 
between  the  upper  and  nether  millstones  of  fixed  rates  and  advancing 
costs  and  wages. 

2.  Termination  of  the  danger  that  threatened  them  from  the  con- 
tinually maturing  obligations  which  ordinarily  they  would  have  little 
trouble  in  refinancing,  but  which,  under  existing  conditions,  can 
scarcely  be  provided  for  on  any  basis. 

3.  Provision  of  means  for  betterment  and  improvement  at  a  time 
when  such  provision  can  be  had  practically  only  through  government 
orders  designed  to  place  such  requirements  ahead  of  those  of  private 
concerns. 

Due  to  recognition  of  these  considerations,  investors  who  had 
previously  regarded  the  situation  with  the  utmost  pessimism  have 
shown  much  greater  confidence  and  enthusiasm  with  respect  to  rail- 
road securities,  as  is  indicated  by  a  rise  of  from  five  to  ten  points  in 
general  values. 

XXXVII.    The  Federal  Organization  Established 

i.    PHASES  IN  THE  DEVELOPMENT  OF  FEDERAL 
RAILROAD  CONTROL 

The  phases  in  the  development  of  the  federal  organization  of 
railroads  are  as  follows: 

i.  On  December  26,  1917,  President  Wilson  through  power 
imposed  in  him  in  the  Army  Bill  of  1916  took  possession  and  assumed 


TRANSPORTATION  3  5 1 

control  of  the  railways  of  the  country  and  appointed  W.  G.  McAdoo 
director-general. 

2.  Congress  in  January  passed  a  railroad-control  bill. 

3.  On  April  n,  1918,  President  Wilson  issued  a  proclamation 
taking  over  for  the  government  the  property  of  coastwise  shipping 
lines. 

4.  On  May  24,  Director-General  McAdoo  placed  in  charge  of 
each  railroad  property  a  federal  manager  whose  duty  it  is  to  report 
to  the  regional  director. 

5.  On  June  29,  the  Railroad  Administration  relinquished  from 
federal  control  nearly  2,000  short-line  railroads  whose  control  by  the 
Administration  was  regarded  as  not  "needful  or  desirable." 

2.    OUTLINE  OF  THE  RAILROAD  CONTROL  BILL1 

The  salient  features  of  the  law  may  be  summarized  as  follows: 
Every  railroad  not  controlled  or  operated  by  any  other  carrier, 
which  has  heretofore  competed  with  a  railroad  system  over  which  the 
President  has  taken  control,  or  which  connects  with  such  railroad  and 
is  engaged  in  general  transportation  as  a  common  carrier,  is  con- 
sidered as  under  federal  control  and  entitled  to  the  benefit  of  all  the 
provisions  of  this  law.  Federal  control,  however,  does  not  extend  to 
street  or  interurban  electric  railways  having  as  their  principal  source 
of  operating  income,  urban,  suburban,  or  local  interurban  passenger 
traffic,  or  the  sale  of  power,  heat,  or  light  (Sec.  i). 

Two  methods  of  determining  just  compensation  for  the  use  of  the 
properties  of  carriers  are  provided  for  in  the  law,  first,  by  agreement 
with  the  carrier,  and,  second,  in  case  agreement  is  not  made,  by  adju- 
dication of  boards  of  referees  appointed  by  the  Interstate  Commerce 
Commission,  whose  decisions  are  subject  to  review  by  the  Court  of 
Claims  of  the  United  States  (Sees,  i  and  2). 

I.      COMPENSATION  BY  AGREEMENT 

The  President  is  authorized  to  make  an  agreement  with  and  guar- 
antee to  any  carrier  under  federal  control,  making  operating  returns 
to  the  Interstate  Commerce  Commission,  that  for  each  year  or  frac- 
tional part  of  a  year  during  the  period  of  federal  control  such  carrier 
shall  receive  as  just  compensation  an  annual  sum,  payable  in  install- 
ments, such  sum  to  be  equivalent,  as  nearly  as  may  be,  to  the  average 

1  From  a  circular  of  the  Guaranty  Trust  Co.  of  New  York,  1918. 


352  ECONOMICS  OF  WAR 

annual  railway-operating  income  for  the  three-year  period  ending 
June  30,  1917  (Sec.  i). 

The  average  annual  operating  income  will  be  ascertained  by  the 
Interstate  Commerce  Commission  and  certified  by  it  to  the  President. 
This  certification  will  be  conclusive  of  the  amount  for  the  purposes  of 
the  agreement  (Sec.  i). 

II.      EXCESS   REVENUE 

Any  railway-operating  income,  accruing  during  the  period  of 
control,  in  excess  of  such  just  compensation,  will  remain  the  property 
of  the  United  States  (Sec.  i).  The  agreement  shall  also  contain 
adequate  provisions  for  the  maintenance,  repair,  renewal,  and  depre- 
ciation of  the  property,  the  creation  of  necessary  reserve  funds,  and 
for  any  accounting  and  adjustments  of  charges  and  payments,  during 
and  at  the  end  of  federal  control,  which  may  be  necessary  in  order  to 
return  the  property  of  each  carrier  in  as  substantially  good  repair  and 
with  as  complete  equipment  as  it  had  at  the  beginning  of  federal 
control,  and  in  order  also  that  the  United  States  may,  by  deductions 
from  the  just  compensation  provided  for  or  by  other  means,  be 
reimbursed  for  any  of  the  above  expenses  of  the  property  not  justly 
chargeable  to  it.  In  making  such  accounting  and  adjustments  the 
amounts  expended  or  reserved  by  each  carrier  for  maintenance, 
repairs,  renewals,  and  depreciation  during  the  three  years  ended 
June  30,  1917,  and  the  condition  at  the  beginning  and  at  the  end  of  the 
federal  control,  and  any  other  pertinent  facts  are  to  be  considered 
(Sec. i). 

Carriers  while  under  federal  control  shall  not,  without  the  approval 
of  the  President,  declare  or  pay  dividends  in  excess  of  the  regular  rates 
during  the  three  years  ended  June  30,  1917.  If  carriers  have  paid  no 
regular  dividends  or  no  dividends  during  this  period,  they  may,  with 
the  approval  of  the  President,  pay  dividends  at  rates  determined  by 
the  President  (Sec.  5). 

The  sum  of  $500,000,000  is  appropriated,  which,  together  with 
any  funds  available  from  the  operating  income  of  the  carriers,  may  be 
used  by  the  President  as  a  revolving  fund  to  pay  the  expenses  of 
federal  control,  and,  so  far  as  necessary,  the  amount  of  just  compensa- 
tion. From  these  funds  the  President  will  also  provide  terminals, 
motive  power,  cars,  and  other  necessary  equipment,  which  will  be  used 
and  accounted  for  as  he  may  direct  and  be  disposed  of  as  Congress 
may  provide  (Sec.  6). 


TRANSPORTATION  353 

III.      ADDITIONS,  BETTERMENTS,   AND   EXTENSIONS   BY  THE 
PRESIDENT 

The  President  may  order  any  carrier  to  make  additions,  better- 
ments, or  road  extensions,  and  to  provide  terminals,  motive  power, 
cars,  and  other  equipment  in  connection  with  its  property,  which  may 
be  desirable  for  war  purposes  or  for  the  interest  of  the  public.  From 
the  revolving  fund  he  may  advance  to  the  carrier  all  or  any  part  of  the 
expense  of  additions,  betterments,  or  road  extensions,  and  provide 
terminals,  motive  power,  cars,  and  other  necessary  equipment  ordered 
and  constructed  by  the  carrier  or  by  the  President.  These  advances 
are  chargeable  against  the  carrier  and  bear  interest  at  the  rates  and 
are  payable  on  the  terms  decided  upon  by  the  President  (Sec.  6). 

The  President  may  expend  any  amount  from  the  revolving  fund 
that  he  deems  desirable  for  the  use  and  operation  of  canals  or  for  the 
purchase,  construction,  and  operation  of  boats  and  other  transpor- 
tation facilities  on  inland,  canal,  and  coastwise  waterways.  In  the 
operation  and  use  of  these  facilities  he  may  employ  any  agencies  and 
make  any  contracts  that  he  deems  necessary  in  the  public  interest 
(Sec.  6). 

IV.      FINANCING   OF   ROADS 

To  provide  funds  requisite  for  maturing  obligations  or  for  other 
proper  expenditures  or  for  reorganizing  railroads  in  receivership, 
carriers  may,  during  the  period  of  federal  control,  issue  bonds,  notes, 
equipment  trust  certificates,  stock,  and  other  forms  of  securities, 
secured  or  unsecured  by  mortgage,  of  which  the  President  approves 
and  deems  consistent  with  the  public  interest.  Out  of  the  revolving 
fund  the  President  may  purchase  for  the  United  States  such  securities, 
at  prices  not  exceeding  par,  and  may  sell  them,  whenever  he  deems  it 
desirable,  at  prices  not  less  than  the  cost.  Securities  so  purchased 
shall  be  held  by  the  Secretary  of  the  Treasury,  who,  under  the  direc- 
tion of  the  President,  shall  represent  the  United  States  in  all  such 
matters  in  the  same  manner  as  a  private  holder.  The  President,  each 
year,  as  soon  as  practicable  after  January  i,  shall  cause  to  be  submitted 
to  Congress  a  detailed  report,  for  the  preceding  calendar  year,  of 
receipts  and  expenditures  in  the  purchase  and  sale  of  securities  and 
in  the  operation  and  maintenance  of  transportation  facilities  on 
inland,  canal,  and  coastwise  waterways  (Sec.  7). 

At  proper  periods  the  President  shall  order  the  closing  of  the  books, 
and  any  net  income  shall  be  covered  into  the  Treasury  of  the  United 


354  ECONOMICS  OF  WAR 

States  to  the  credit  of  the  revolving  fund  created  by  this  Jaw.  If 
revenues  are  insufficient  to  meet  disbursements,  the  deficit  shall  be 
paid  out  of  the  revolving  fund  as  the  President  directs  (Sec.  12). 

Federal  control  shall  continue  during  the  period  of  the  war  and 
for  a  reasonable  time  thereafter,  not  exceeding  twenty-one  months 
from  the  date  of  the  President's  proclamation  of  the  exchange  of 
ratifications  of  the  treaty  of  peace.  The  President  in  his  discretion 
may,  prior  to  July  i,  1918,  relinquish  control  over  all  or  any  part  of  a 
system  of  transportation,  or  at  any  time  during  the  period  of  federal 
control  may  agree  with  the  owners  to  do  so,  or  may  relinquish  all 
systems  of  transportation  under  federal  control  at  any  time  he  deems 
such  action  desirable.  No  right  to  compensation  accrues  to  the 
owners  from  the  date  of  such  relinquishment  (Sec.  14). 

V.      CONFLICT   OF   STATE   LAWS 

The  law  is  not  to  be  construed  to  amend,  repeal,  impair,  or  affect 
existing  laws  or  powers  of  the  states  in  relation  to  taxation  or  lawful 
police  regulations  except  where  such  laws,  powers,  or  regulations  may 
affect  the  transportation  of  troops,  war  materials,  government 
supplies,  or  the  issue  of  stocks  and  bonds  (Sec.  15). 

XXXVIII.    What  Federal  Control  Has  Accomplished 
i.     GENERAL  POLICY1 

The  policy  of  the  United  States  Railroad  Administration  has  been 
informed  and  shaped  by  a  desire  to  accomplish  the  following  purposes, 
which  are  named  in  what  I  conceive  to  be  the  order  of  their 
importance : 

First,  the  winning  of  the  war,  which  includes  the  prompt  move- 
ment of  the  men  and  the  material  that  the  government  requires. 
To  this  everything  else  must  be  subordinated. 

Second,  the  service  of  the  public,  which  is  the  purpose  for  which  the 
railways  were  built  and  given  the  privileges  accorded  them.  This 
implies  the  maintenance  and  improvement  of  the  railroad  properties 
so  that  adequate  transportation  facilities  will  be  provided  at  the 
lowest  cost,  the  object  of  the  government  being  to  furnish  service 
rather  than  to  make  money. 

Third,  the  promotion  of  a  spirit  of  sympathy  and  a  better  under- 
standing between  the  administration  of  the  railways  and  their  two 

'By  William  G.  McAdoo.  Adapted  from  "Doings  of  the  United  States 
Railroad  Administration."  Statement  by  the  Director-General  on  June  15,  1918. 


TRANSPORTATION  355 

million  employees,  as  well  as  their  one  hundred  million  patrons,  which 
latter  class  includes  every  individual  in  the  nation,  since  transporta- 
tion has  become  a  prime  and  universal  necessity  of  civilized  existence. 
Fourth,  the  application  of  sound  economies,  including: 

(a)  The  elimination  of  superfluous  expenditures. 

(b)  The  payment  of  a  fair  and  living  wage  for  services  rendered  and  a 
just  and  prompt  compensation  for  injuries  received. 

(c)  The  purchase  of  material  and  equipment  at  the  lowest  prices 
consistent  with  a  reasonable,  but  not  an  excessive,  profit  to  the 
producer. 

(d)  The  adoption  of  standardized  equipment  and  the  introduction 
of  approved  devices  that  will  save  life  and  labor. 

(e)  The  routing  of  freight  and  passenger  traffic  with  due  regard  to  the 
•fact  that  a  straight  line  is  the  shortest  distance  between  two 
points. 

(/")  The  intensive  employment  of  all  equipment  and  a  careful  record 
and  scientific  study  of  the  results  obtained,  with  a  view  to  deter- 
mining the  comparative  efficiency  secured. 

The  development  of  this  policy  will,  of  course,  require  time.  The 
task  to  which  the  Railroad  Administration  has  addressed  itself  is  an 
immense  one.  It  is  as  yet  too  early  to  judge  of  the  results  obtained, 
but  I  believe  that  great  progress  has  been  made  toward  the  goal  of 
our  ideals.  All  those  who  have  had  a  share  in  this  great  work,  includ- 
ing especially  the  members  of  my  staff  and  the  officers  and  employees 
of  the  railways,  have  shown  intelligence,  public  spirit,  loyalty,  and 
enthusiasm  in  dealing  with  problems  that  have  already  been  solved 
and  in  attacking  those  that  still  await  solution. 

With  their  continued  co-operation  I  feel  assured  of  a  future  in 
which  the  lessons  of  our  accumulating  experience  will  be  effectively 
employed  to  humanize  the  science  of  railroading  and  negative  the  idea 
that  corporations  have  no  souls. 

2.     SOME  RESULTS1 

I.      FINANCE 

The  three  most  important  financial  acts  of  the  new  Railroad 
Administration  in  its  first  half-year  were:  (i)  the  allotment  of  nearly 
a  billion  dollars  for  betterments  and  extensions,  (2)  increases  in  wages 
which  are  expected  to  amount  to  $300,000,000  in  1918,  and  (3)  (on 

1  An  editorial. 


356  ECONOMICS  OF  WAR 

the  day  following  the  wage  increases)  sweeping  increases  in  freight 
and  passenger  rates. 

The  total  amount  allowed  for  capital  expenditures  for  1918  was 
$937,961,318,  while  proposed  outlays  amounting  to  over  a  third  more 
were  eliminated  in  the  final  revision.  Of  this  sum,  only  eighteen 
millions  go  to  extensions,  the  rest  being  fairly  evenly  divided  between 
the  two  heads  of  equipment,  and  additions  and  betterments  to  existing 
plant.  The  result  should  be  to  enable  the  roads  to  cut  down  their 
expenses  of  conducting  transportation,  which  have  been  unduly 
swollen  by  the  past  season's  congestion  of  freight.  The  funds  for 
these  plant  outlays  come  partly  from  the  surpluses  of  the  roads 
themselves  and  partly  from  the  "revolving  fund"  of  $500,000,000 
appropriated  by  act  of  Congress. 

The  advances  in  wages  were  based  on  the  report  of  a  wage  com- 
mission, with  minor  changes,  and  the  largest  percentage  of  increase 
goes  to  those  receiving  the  lowest  wages.  The  increases  are  cal- 
culated from  the  wages  of  December,  1915,  and  since  that  time  the 
roads  themselves  have  increased  wages  more,  in  some  cases,  than  the 
McAdoo  order  increases  them,  especially  in  the  higher  grades  of  work, 
where  the  men  are  strongly  organized.  The  Adamson  eight-hour  law 
has  undoubtedly  had  the  effect  of  raising  wages.  The  advances  were 
made  retroactive,  taking  effect  January  i,  1918,  though  the  order  was 
issued  May  26.  The  wage  question  is  of  course  always  open  to  further 
adjustments. 

The  increase  in  rates  and  fares  was  made  for  the  purpose  of 
meeting  extraordinary  increases  in  operating  expenses,  estimated  at 
from  $830,000,000  to  $860,000,000  for  1918,  including  the  rise  in 
wages.  Freight  rates  were  ordered  increased  by  25  per  cent,  except 
so  far  as  specific  increases  were  ordered  for  particular  commodities, 
such  as  coal,  coke,  and  iron  ores.  The  same  order  levels  state  rates 
up  to  the  interstate  basis  and  cancels  all  export  and  import  rates,  thus 
putting  an  end  to  the  practise  of  charging  less  for  the  same  haul  on 
goods  that  are  going  abroad  or  coming  from  abroad  than  on  domestic 
freight.  Passenger  fares  are  increased  to  3  cents  per  mile,  or  3^  cents 
in  Pullmans  (in  addition  to  the  Pullman  charge),  and  commutation 
fares  are  raised  10  per  cent.  These  new  rates  should  yield  enormous 
increases  in  operating  revenues  over  the  $3,824,419,739  earned  by  the 
roads  in  1917.  There  is  little  danger  that  the  roads  will  suffer  serious 
loss  by  reason  of  any  shrinkage  of  traffic  resulting  from  the  increased 
charges.  Passenger  fares  may  prove  high  enough  to  discourage 


TRANSPORTATION  357 

unnecessary  travel,  but  the  administration  appears  quite  ready  to 
take  advantage  of  this  opportunity  to  reduce  passenger  schedules  and 
free  the  roads  for  the  more  essential — and  more  profitable — movement 
of  freight. 

II.      OPERATION 

It  "was  a  black  time  when  the  federal  administration  took  over  the 
roads,  so  far  as  operation  was  concerned.  The  lines  were  congested 
to  the  point  of  breakdown,  and  blizzards  and  severe  cold  (which  cuts 
down  the  ability  of  locomotives  to  make  steam)  furnished  the  finishing 
touches.  The  traffic  became  so  thoroughly  blocked  that  in  the  first 
month  of  federal  control  the  eastern  lines  did  not  move  enough  freight 
to  pay  their  operating  expenses. 

The  priority  system  permitted  the  yards  to  fill  up  with  more 
freight  than  could  be  hauled,  and  one  of  the  first  acts  of  the  new 
administration  was  to  put  in  its  place  a  policy  of  embargoing  traffic 
which  it  thought  it  could  not  move.  The  measures  that  the  Railroads' 
War  Board  had  taken  to  increase  operating  efficiency  were  carried 
farther  under  the  new  management.  Freight  cars  were  made  to 
carry  even  heavier  loads,  cars  were  more  freely  ordered  from  one  road 
to  another,  and  the  administration's  control  of  the  routing  of  freight 
was  made  absolute,  regardless  of  shippers'  preferences  or  of  the 
earnings  of  particular  roads.  The  policy  is  to  route  freight  over  the 
shortest  line,  or,  if  that  is  congested,  then  over  the  shortest  line  that 
is  open.  A  "train-lot  plan"  of  freight  moving  has  been  used  with 
great  success,  the  plan  hinging  on  the  willingness  of  the  roads  to  give 
up  their  privilege  of  getting  what  traffic  they  can  and  moving  it  when 
they  find  it  advisable  not  to  keep  the  shippers  waiting  any  longer, 
whether  the  train  is  full  or  not.  Passenger  schedules  have  been  still 
further  cut,  and  perhaps  to  better  effect  than  before.  Under  competi- 
tive conditions  the  temptation  is  strong  to  keep  the  through  train,  let 
us  say,  between  Chicago  and  Minneapolis,  which  competes  with  the 
rival  road's  through  train,  and  to  let  some  less  profitable  or  less 
strategic  train  go.  Competitive  duplications  in  passenger  schedules 
were  by  no  means  eliminated  under  the  Railroads'  War  Board,  though 
many  trains  were  taken  off  relatively  unprofitable  branch  lines  where 
there  was  no  duplication.  Freight  solicitation  has  been  stopped  and 
the  city  ticket  offices  of  the  different  roads  are  being  consolidated, 
while  terminal  facilities  are  being  pooled  to  such  an  extent  that  some 
observers  doubt  if  they  can  ever  be  "unscrambled." 


358  ECONOMICS  OF  WAR 

One  of  the  most  hotly  debated  moves  of  the  Railroad  Adminis- 
tration has  been  the  introduction  of  standardized  cars  and  engines. 
The  chief  arguments  in  favor  of  this  policy  are:  (i)  It  will  facilitate 
the  free  movement  of  equipment  from  one  line  to  another  and  make 
possible  the  economies  of  pooled  equipment  without  the  waste  that 
results  if  rolling  stock  has  to  be  sent  home  for  repairs  or  be  repaired 
in  shops  not  fitted  for  it.  (2)  Economies  in  construction  are  expected' 
from  quantity  output.  The  chief  arguments  against  the  plan  are: 
(i)  The  models  will  be  compromises  and  less  efficient  than  the  best 
now  in  use.  Locomotives  in  particular  are  now  adapted  to  the  grades 
and  operating  conditions  of  each  particular  line  far  more  closely  than 
standardized  engines  could  possibly  be.  (2)  Delay  inevitably  results 
when  new  plans  must  be  prepared  instead  of  utilizing  those  already 
available.  It  appears  that  many  of  the  plans  for  standardization 
have  had  to  be  abandoned.  Meanwhile  the  ordering  of  new  engines 
and  cars  was  delayed  for  several  months,  with  the  result  that  no 
new  rolling  stock  can  be  delivered  in  1918  until  late  in  the  autumn, 
and  then  probably  less  than  100,000  cars,  and  this  in  the  face  of  an 
annual  death  toll  of  approximately  150,000  cars. 

One  excellent  example  of  the  difference  between  the  way  things 
can  be  done  under  federal  operation  and  the  way  they  have  had  to  be 
done  under  private  operation  is  furnished  by  the  raising  of  demurrage 
rates.  Demurrage  is  a  charge  made  to  shippers  who  hold  cars 
unloaded  beyond  a  specified  time,  and  the  rate  was  formerly  $1.00 
per  day.  The  roads  had  long  been  negotiating  with  a  view  to  sub- 
stituting a  sliding  scale  of  from  $2.00  to  $5.00  per  day,  and  had 
finally  got  permission  from  the  Interstate  Commerce  Commission  and 
several  state  commissions.  Under  war  conditions  shippers  often 
held  cars  in  spite  of  demurrage  (especially  contractors  whose  pay  was 
to  be  a  percentage  above  their  costs).  The  Director  General  was 
able,  without  waiting  for  negotiations  and  consents,  to  establish  a 
sliding  scale,  $3 .  oo  for  the  first  day,  $4 .  oo  for  the  second,  and  so  on 
up  to  a  maximum  of  $10.00  for  the  eighth  and  subsequent  days, 
while  offending  shippers  were  put  under  embargoes. 

Such  sweeping  action  as  this  or  the  increase  in  freight  and  pas- 
senger charges  was  made  possible  by  three  facts:  (i)  A  central 
authority  had  taken  the  place  of  the  "system  of  checks  and  balances" 
between  privately  owned  roads  and  state  and  federal  commissions 
with  their  essential  conflict  of  jurisdiction.  This  central  power  could 
act  swiftly,  but  even  so,  in  certain  states,  there  were  "vested  interests" 


TRANSPORTATION  359 

in  existing  differentials  between  state  and  interstate  rates,  and  these 
were  strong  enough  to  bring  about  a  modification  of  the  rate  order  so 
far  as  it  disturbed  these  differentials.  (2)  The  responsibility  was 
taken  by  an  agency  of  government,  not  by  the  railroad  companies. 
(3)  It  could  not  increase  the  profits  of  the  companies,  since  these  were 
fixed  under  the  federal  guaranty.  These  last  two  facts  tended  to 
allay  popular  opposition,  perhaps  even  more  powerfully  than  the 
general  recognition  of  the  need  of '"putting  up  with  things"  in  the 
emergency  of  war. 

3.    PREVENTION  OF  TRAFFIC  CONCENTRATION1 

The  announcement  last  week  by  the  Secretary  of  War,  the 
Secretary  of  the  Navy,  and  Director  General  McAdoo  of  the  creation 
of  a  joint  Exports  Control  Committee  with  complete  power  to  control 
the  movement  of  export  freight  represents  one  of  the  most  important 
steps  toward  co-ordinating  war  transportation  that  has  yet  been  taken 
by  the  government. 

This  committee  is  to  have  authority  to  select  the  port  to  which 
specific  freight  shall  be  transported  for  transshipment  overseas  for 
the  use  of  the  Army  and  Navy,  the  allied  governments,  and  others, 
and  it  is  given  the  responsibility  of  deciding  the  distribution  between 
the  various  ports  of  the  combined  amount  of  all  exports  so  as  to 
facilitate  its  handling  at  any  one  port  and  to  avoid  congestion  at  any 
one  port.  In  order  to  carry  out  its  important  task  with  full  knowledge 
of  the  various  requirements,  the  committee  consists  of  authoritative 
representatives  of  the  War  and  Navy  Departments,  the  Railroad 
Administration  and  the  shipping  interests,  and  the  Traffic  Executive 
controlling  the  allied  traffic. 

Long  before  the  United  States  entered  the  war  the  results  of  a 
lack  of  co-ordination  and  control  of  export  traffic  were  made  evident 
in  serious  congestion  throughout  the  eastern  industrial  section  and 
particularly  at  the  North  Atlantic  port  terminals.  Shippers  who 
received  their  money  for  goods  consigned  to  the  allied  governments  as 
soon  as  the  freight  was  loaded  on  cars  were  naturally  overzealous  in 
starting  freight  toward  the  ports,  regardless  of  the  possibilities  of 
handling  it  at  destination  or  of  the  capacity  of  boats  to  carry  it  across 
the  ocean.  At  a  time  when  the  country  had  not  yet  awakened  to  the 
seriousness  of  the  situation  railroads  were  too  reluctant  to  place 
drastic  embargoes  and,  rather  than  risk  the  unpopularity  of  doing  so, 

1  Adapted  from  Railway  Age  (June  28,  1918),  p.  1549- 


360  ECONOMICS  OF  WAR 

tried  to  crowd  more  freight  through  the  neck  of  the  bottle  than  could 
be  accommodated.  When  the  embargoes  finally  were  placed  it  was 
too  late.  More  freight  than  could  be  transshipped  had  been  carried 
to  the  eastern  terminals,  choking  the  main  lines  as  well  as  yard  and 
terminal  tracks,  and  when  this  situation  developed  to  such  an  extent 
that  it  was  necessary  to  unload  freight  on  the  ground,  the  congested 
condition  extended  so  far  back  toward  the  west  that  it  was  difficult  to 
return  empty  cars.  The  unpopularity  of  the  embargo  was  so  great 
that  freight  would  often  be  taken  upon  the  lines  and  would  then  have 
to  be  embargoed  half-way  towards  its  destination,  and  intermediate 
lines  were  blocked  in  both  directions. 

This  condition  became  steadily  more  acute,  and,  while  many 
people  blamed  the  railroads,  the  railroads  retorted  by  saying  that  the 
difficulty  was  with  the  shipping  situation.  They  were  carrying 
freight  to  destinations  as  billed,  but  ships  were  not  available  to  take 
away  the  freight  they  had  delivered.  While  certain  ports  were 
overcrowded,  others  were  not  being  utilized  to  capacity,  but  the 
railroads  had  no  control  over  the  routing  of  freight,  and  goods  were 
sent  to  the  ports  where  the  boats  were  most  numerous.  When  efforts 
were  made  to  secure  a  larger  number  of  sailings  to  the  ports  which 
were  not  being  utilized  to  capacity,  the  shipping  interests  said  that 
the  freight  offered  at  those  ports  was  not  sufficient  to  justify  them  in 
sending  vessels  there. 

Now  the  routing  of  freight  has  been  taken  out  of  the  hands  of  the 
shipper  and  placed  in  the  hands  of  the  railroads,  and  with  the  creation 
of  the  Exports  Control  Committee  there  is  sufficient  authority  to 
direct  the  railroads  where  to  put  the  freight  and  simultaneously  to 
direct  the  boats  to  go  there  and  get  it.  Moreover,  it  is  possible  to 
apply  the  embargo  at  the  point  of  origin  so  that  consignments  will  not 
be  sent  to  ports  where  they  cannot  be  handled,  but  may  be  diverted 
to  places  where  they  are  needed  and  can  be  accommodated.  This  is 
expected  to  develop  a  much  more  intensive  use  of  the  South  Atlantic 
and  Gulf  ports,  which  still  have  much  unutilized  capacity  and  still 
greater  potential  capacity. 

XXXIX.     The  Express  Companies1 

The  four  principal  express  companies  operating  in  the  United 
States,  the  Adams  Express  Company,  the  American  Express  Com- 
pany, Wells  Fargo  &  Company,  and  the  Southern  Express  Company, 

1  Adapted  from  Railway  Age,  LXIV,  No.  23,  June  7,  1918. 


TRANSPORTATION  361 

are  to  be  combined  into  a  new  company,  effective  on  July  i,  to  be 
known  probably  as  the  American  Railroad  Express  Company,  which 
will  be  given  virtually  a  monopoly  of  the  express  business  by  a  con- 
tract with  the  United  States  Railroad  Administration  for  the  carry- 
ing on  of  the  express  business  for  all  the  railroads  under  federal 
control. 

This  plan,  which  has  been  worked  out  after  several  weeks  of 
negotiations  between  the  representatives  of  the  express  companies 
and  the  division  of  public  service  and  accounting  of  the  Railroad 
Administration,  has  been  sanctioned  by  the  director  general  in  place 
of  the  plan  earlier  proposed,  which  it  is  understood  was  advocated  by 
the  express  companies,  for  placing  the  express  companies  under 
government  operation  in  the  manner  adopted  for  the  railroads. 

Under  this  arrangement  there  will  be  no  government  guaranty 
of  earnings,  but  the  express  company  will  be  a  private  corporation 
acting  as  the  director-general's  agent  for  carrying  on  the  express 
business.  The  character  of  the  service  and  the  character  of  the  rates 
will  be  under  the  director-general's  control  and  subject  to  initiation 
by  him,  and  the  government  will  share  in  any  profits  above  5  per  cent 
on  the  capital  stock. 

Whereas  the  express  companies  now  have  contracts  with  the 
railroad  companies  by  which  they  pay  to  the  latter  a  fixed  percentage 
of  their  gross  earnings,  usually  about  50  per  cent,  for  "express  privi- 
leges," they  will  now  have  but  one  contract  with  the  government,  and 
the  director  general  will  receive  50^  per  cent  of  the  gross  earnings. 
This  percentage  was  arrived  at  by  taking  the  average  for  ten  years 
of  the  payments  by  the  express  companies  to  the  railroads. 

Out  of  the  balance  of  the  revenues  the  express  company  will  pay 
operating  expenses  and  taxes  and,  if  earned,  a  dividend  of  5  per  cent 
on  the  capital  stock.  If  more  than  5  per  cent  is  available  for  dis- 
tribution, out  of  the  next  2  per  cent  the  express  company  will  receive 
i  per  cent  and  the  government  i  per  cent;  out  of  the  next  3  per  cent 
available  for  distribution  the  express  company  will  receive  i  per  cent 
and  the  government  2  per  cent;  any  further  amounts  available  for 
distribution  will  be  divided,  one-quarter  to  the  express  company  and 
three-quarters  to  the  government. 

An  important  feature  of  the  arrangement  is  that  the  new  company 
will  be  capitalized  only  to  the  extent  of  actual  property  and  cash  put 
into  the  business,  and  it  was  stipulated  by  the  government  that  this 
should  not  exceed  $40,000,000.  The  actual  amount  determined  upon 


362  ECONOMICS  OF  WAR 

is  $35,000,000,  including  $30,000,000  issued  to  the  old  companies  in 
proportion  to  the  physical  properties  involved,  and  $5,000,000  issued 
at  par  for  cash  to  represent  working  capital. 

One  of  the  points  which  received  considerable  discussion  during 
the  negotiations  was  as  to  whether  railroad  employees  should  continue 
to  act  as  agents  for  the  express  company  as  station  agents  now  do, 
receiving  as  compensation  a  percentage  commission  on  the  business 
handled.  Under  the  plan  decided  upon,  while  the  new  express  com- 
pany is  permitted,  upon  arranging  therefor  with  the  director  general, 
to  use  railroad  employees  in  express  service,  the  entire  compensation 
of  all  such  employees,  both  for  railroad  and  express  services,  will  be 
fixed  and  paid  by  the  director  general,  and  the  express  company  will 
compensate  the  director  general  for  services  rendered  by  such 
employees  to  the  express  company.  The  Railroad  Administration 
objected  to  a  plan  which  would  give  opportunity  for  competition 
between  railroad  and  express  in  the  person  of  the  agent,  who  might  be 
interested  in  diverting  shipments  to  the  express  if  he  were  to  receive 
a  commission  on  such  business. 

The  new  arrangement  will  make  it  possible  to  avoid  a  great  deal 
of  wasteful  duplication  of  facilities  and  to  eliminate  a  large  amount 
of  accounting  with  the  individual  railroads,  which,  while  necessary 
under  the  old  system  of  separate  contracts  between  the  express 
companies  and  the  various  railroad  companies,  will  be  unnecessary 
under  the  new  system. 

The  offices  of  the  competing  companies  will  be  consolidated  or 
otherwise  readjusted  to  the  new  conditions  and  new  routes  will  be 
opened. 

The  agreement  between  the  government  and  the  express  com- 
panies recites  that  "whereas  the  director  general  is  of  the  opinion  that 
the  express-transportation  business  upon  the  railroads  and  systems 
of  transportation  under  federal  control  can  be  most  efficiently  carried 
on  through  the  agency  of  a  single  corporation,  which  shall  act  as  the 
sole  agent  of  the  government  in  conducting  said  business,"  the  express 
companies  shall  cause  to  be  organized  a  corporation  for  the  purpose 
of  carrying  on  for  the  director  general  the  express-transportation 
business  upon  the  railroads  under  federal  control  and  elsewhere  as 
may  be  determined  by  the  director  general. 


TRANSPORTATION  363 

XL.    The  Outcome 

i.     UNIFIED  REGULATION  REQUIRED1 

There  is  a  general  impression  that  the  laws  of  the  country  have 
prevented  unity  of  operation  among  railways,  and  a  consistent 
attempt  has  been  made  to  lay  at  the  door  of  the  government  the 
failure  of  the  carriers  to  cooperate  in  the  use  of  their  physical  equip- 
ment. The  railroads  have  failed  to  "get  together"  merely  because  in 
everything  except  the  fixing  of  rates  the  railroad  business  is  required 
by  law  to  be  a  highly  competitive  business. 

It  is  useless  to  assume  that  the  repeal  of  the  anti-pooling  clause 
of  the  Act  to  Regulate  Commerce  and  the  modification  of  the  Sherman 
Law  would  by  themselves  be  enough  to  bring  about  voluntary  railroad 
unity.  These  laws  have  not  stood  in  the  way  of  the  operating  unity 
sorely  needed  at  many  terminals,  and  the  mere  repeal  of  these  acts  will 
not  affect  this  situation.  There  is  no  doubt  that  the  formation  of  pool- 
ing agreements  would  make  it  easier  for  the  railroad  companies  to  effect 
the  financial  arrangements  necessary  to  a  plan  of  unified  operation 
under  private  ownership,  if  the  private  owners  want  such  a  plan. 
Hence,  if  private  operation  is  to  be  resumed,  it  is  desirable  that  pooling 
should  be  permitted;  but  the  mere  toleration  of  pools  and  rate  agree- 
ments will  not  lead  to  the  voluntary  unification  of  physical  facilities 
so  long  as  railroad  managers  desire  to  continue  their  hold  on  their 
particular  monopoly  advantages. 

That  some  adequate  system  of  railroad  regulation  can  be  devised 
which  will  permit  the  railroads  to  prosper  and  give  efficient  service 
at  reasonable  rates  is  not  to  be  doubted,  and  it  is  with  this  goal  in 
view  that  the  next  steps  in  railroad  regulation  must  be  taken.  The 
United  States  is  not  prepared  to  adopt  a  program  of  government 
ownership  of  railroads,  and  it  is  to  be  hoped  that  once  the  present 
crisis  is  passed  the  railroads  will  be  returned  to  private  management 
and  a  system  of  regulation  be  devised  under  which  satisfactory  results 
may  be  obtained.  We  certainly  shall  never  return  to  the  policy 
recently  abandoned,  which  has  proved  such  a  lamentable  failure,  and 
if  government  ownership  is  to  be  avoided  we  should  begin  at  once  to 

1  By  T.  W.  Van  Metre.  Adapted  from  "Failures  and  Possibilities  in  Railroad 
Regulation,"  Annals  of  the  American  Academy  of  Political  and  Social  Science, 
LXXXVI  (March,  1918),  3-13.  Copyright,  by  the  American  Academy  of  Political 
and  Social  Science,  1918. 

ED.  NOTE. — Mr.  Van  Metre  (1884 — )  is  assistant  professor  of  transportation 
in  the  School  of  Business  at  Columbia  University. 


364  ECONOMICS  OF  WAR 

take  stock  of  failures  and  successes  and  to  make  plans  for  the  future. 
There  are  a  number  of  radical  changes  that  can  be  safely  made  which 
would  go  far  toward  establishing  our  regulative  system  on  a  funda- 
mentally sound  basis  and  would  render  easy  the  working  out  of  the 
details  of  a  harmonious  and  constructive  policy. 

The  dual  system  of  regulation  as  carried  on  at  present  inevitably 
leads  to  a  violation  of  the  fundamental  principles  upon  which  regula- 
tion is  based:  that  rates  shall  be  just  and  reasonable,  and  that  they 
shall  not  be  unduly  discriminatory.  While  it  is  possible  technically 
to  distinguish  between  interstate  and  intrastate  traffic,  there  is  in  an 
economic  sense  no  real  distinction  between  them.  The  fact  that 
nine-tenths  of  railroad  traffic  is  interstate  and  consequently  already 
under  the  jurisdiction  of  the  federal  commission  would  seem  to  indicate 
that  the  remaining  tenth  could  be  safely  entrusted  to  its  authority 
without  any  undue  increase  of  its  work  and  with  a  considerable  gain 
in  the  efficiency  and  uniformity  of  regulation. 

The  urgent  need  for  a  unified  system  of  regulating  the  issue  of 
securities  by  railroad  corporations  and  the  almost  unanimous  belief 
that  this  function  should  be  entrusted  to  federal  authority  lead  one 
to  wonder  why  it  takes  so  long  to  secure  a  law  by  which  this  much- 
needed  change  may  be  accomplished.  When  such  a  law  is  enacted 
it  is  to  be  hoped  that  it  will  also  include  provision  for  some  supervision 
of  the  expenditure  of  funds  derived  from  the  sale  of-  authorized  secur- 
ities. There  is  a  serious  question  in  many  minds  as  to  the  wisdom 
with  which  the  large  investments  placed  in  the  railroad  business  in 
recent  years  have  been  used.  The  wholesale  expenditure  for  the 
construction  of  huge  passenger  terminals  at  a  time  when  the  need  for 
improved  freight  terminal  facilities  was  probably  much  more  pressing 
has  been  looked  upon  with  some  disfavor,  both  on  account  of  the 
disparity  of  income  from  the  freight  and  passenger  business  and 
because  in  many  cases  the  passenger  terminals  represent  costly 
duplications  of  effort  with  results  that  do  not  show  much  progress 
toward  an  ultimate  solution  of  the  problem  of  handling  a  rapidly 
congesting  passenger  traffic. 

There  should  be  devised  some  plan  by  which  needed  increases  in 
rates  can  be  secured  with  more  expedition  and  promptness-than  appears 
to  be  possible  under  present  conditions.  It  is  not  advisable  that  the 
authority  of  regulative  agencies  to  suspend  proposed  increases  be  with- 
drawn, but  it  would  probably  be  helpful  if  the  time  of  rate  suspensions 
were  made  shorter  than  is  now  customary.  It  is  of  the  utmost  impor- 
tance that  the'credit  of  soundly  financed  railroads  be  maintained,  and 


TRANSPORTATION  365 

this  can  be  done  only  if  methods  are  devised  for  meeting  promptly 
sudden  emergencies.  Rates  are  now  flexible  in  but  one  direction, 
and  it  is  extremely  difficult  for  the  carriers  to  adjust  their  charges  so 
as  to  meet  the  rapid  increases  in  wages  and  prices  of  materials. 

And  finally,  as  a  sine  qua  non  of  a  resumption  of  private  operation, 
provision  must  be  made  for  the  permanency  of  the  operating  unity 
now  going  into  effect.  Two  things  will  have  to  be  done:  (i)  The 
carriers  must  be  permitted  to  enter  pooling  agreements  by  means  of 
which  the  financial  adjustments  necessary  to  operating  unity  may  be 
effected;  (2)  the  carriers  must  be  required  to  combine  their  physical 
facilities  wherever  such  combination  will  result  in  improved  service. 
There  is  no  reason  for  limiting  the  unified  "  continental  railway 
system"  to  the  duration  of  the  war;  its  proved  advantages  will  be  all 
the  more  valuable  with  the  return  of  peace.  It  must  not  be  expected 
that  the  railroad  companies  will  voluntarily  enter  agreements  for 
unity  of  operation,  though  it  is  highly  probable  that  the  present 
experience  with  unification  under  government  control  will  render 
compulsion  less  difficult.  In  the  main  the  joint  use  of  facilities  will 
be  confined  to  terminals,  where  the  wastes  of  competition  have  been 
greatest.  Saving  must  be  accomplished,  however,  through  a  more 
elastic  system  of  routing  shipments;  the  expensive  duplication  in 
passenger  service  may  be  cut  down,  and  the  necessity  for  private  car 
lines  and  express  companies — parasitic  organizations  which  came  into 
existence  solely  because  of  the  lack  of  a  unified  system  of  operation — 
will  be  entirely  eliminated;  such  companies  have  performed  a  real 
public  service  in  the  past,  but  with  unity  of  railroad  operation  they 
will  exist  for  no  useful  purpose.  The  chief  economy  will  be  effected, 
however,  through  the  reconstruction  and  reorganization  of  terminals; 
it  begins  to  appear  that  the  time  is  forever  past  when  the  shamefully 
wasteful  terminal  operation,  which  exists  merely  as  an  evidence  of 
the  monopolistic  power  of  a  strongly  entrenched  special  privilege,  will 
be  permitted  to  stand  unchallenged.  The  willingness  or  the  unwilling- 
ness of  the  carriers  to  acquiese  in  cooperative  arrangements  which 
plainly  make  for  increased  efficiency  will  be  the  deciding  factor  in  the 
coming  controversy  over  government  ownership. 

2.     SOME  INFERENCES1 

What  does  the  experience  of  the  railways  in  the  war  teach  us? 
One  group  of  observers  points  out  that  it  was  neither  unwillingness 
nor  incapacity  that  made  it  impossible  for  the  roads  under  private 

1  An  editorial. 


366  ECONOMICS  OF  WAR 

management  to  achieve  the  unity  and  increased  efficiency  that  the 
emergency  demanded,  but  restrictive  regulation.  They  point  out 
that  the  roads  have  been  prevented  from  combining  into  unified 
regional  systems  by  the  Sherman  Law,  from  pooling  freight  by  the 
Act  to  Regulate  Commerce,  and  from  any  radical  increase  of  rates 
or  curtailment  of  service  by  the  need  of  getting  the  sanction  of  many 
commissions.  Moreover,  state  control  of  capitalization  has  hindered 
the  roads  from  raising  new  capital  in  their  own  way  (involving  the 
issue  of  stock  beyond  the  amount  of  the  actual  investment),  but  it 
has  furnished  no  constructive  substitute.  If  the  roads  had  only  been 
freed  in  time  (the  inference  goes)  from  these  limitations,  federal 
operation  might  not  have  been  necessary  to  enable  them  to  meet  the 
crisis.  _ 

This  reasoning  is  only  partly  valid.  The  railroads  might  have 
been  set  free  to  build  up  a  national  monopoly  or  a  series  of  regional 
monopolies  free  from  effective  control  as  to  rates  or  capitalization, 
and  the  despotic  power  of  this  machine  might  have  been  used  patriot- 
ically and  efficiently  to  win  the  war.  But  there  would  have  been 
widespread  suspicion  of  profiteering  when  rates  were  increased  and 
service  curtailed,  and  whether  this  had  just  grounds  or  not  it  would 
have  created  a  state  of  opinion  among  farmers,  laborers,  and  others 
that  would  have  done  incalculable  harm  to  the  efficient  prosecution  of 
the  war  by  the  nation  as  a  whole.  The  roads  have  been  asking  for 
freedom  and  power,  and  the  war  has  proved  that  freedom  and  central- 
ized power  were  needed,  but  it  does  not  follow  that  it  could  safely 
have  been  given  to  private  corporations,  even  in  time  of  war,  and  still 
less  in  time  of  peace. 

Moreover,  the  kind  of  control  best  suited  to  war  is  different  from 
that  best  suited  to  peace.  In  war  other  things  must  give  way  to  the 
dominant  need  of  adequate  equipment  and  immediate  efficiency.  In 
peace  the  long-run  consequences  (perhaps  irrevocable)  of  consolida- 
tion may  give  men  pause  in  spite  of  obvious  immediate  gains,  and  the 
shipper  may  be  given  the  benefit  of  the  doubt  even  if  this  cuts  down 
revenues  enough  to  delay  the  provision  of  equipment.  It  may  have 
seemed  clumsy  to  cling  to  the  remnants  of  competition  while  develop- 
ing such  machinery  for  the  public  control  of  rates  as  might  seem  to 
make  competition  superfluous  as  a  protection  to  the  public.  But  in 
f#ct  the  system  of  control  had  not  been  sufficiently  matured  and 
tested  to  justify  the  public  in  assuming  that  it  had  an  all-sufficient 
substitute  for  the  regulative  power  of  competition.  Time  would  tell 


TRANSPORTATION  367 

perhaps,  but  if  in  the  meantime  the  roads  were  permitted  to  consoli- 
date, there  would  be  no  turning  back.  So  Congress  felt  its  way  slowly, 
till  its  leisure  for  experimentation  was  interrupted  by  the  Great 
Disturber. 

The  increase  of  rates  in  May,  1918,  is  pointed  to  as  justification 
of  the  railroads'  repeated  claims  for  higher  charges,  and  it  is  implied 
that  it  was  the  inability  to  increase  rates  high  enough  to  offer  a 
prospect  of  reasonable  earnings  to  new  capital  which  had  kept  the 
roads  from  getting  enough  equipment  to  handle  the  war  traffic. 
The  curious  fact  is,  however,  that  the  years  of  federal  control  have 
been  years  of  surprisingly  steady  increase  in  earnings,  up  to  the  year 
1910,  taking  as  a  standard  the  ratio  of  net  operating  income  to  the 
book  cost  of  roads  and  equipment.  The  year  1911  showed  the  begin- 
ning of  a  decline  and  1915  was  a  very  bad  year,  though  earnings  were 
still  higher  than  the  best  year  of  the  decade  1890-99.  The  breakdown 
of  the  railroads'  financing  was  occasioned  by  this  series  of  bad  years, 
perhaps,  but  the  underlying  cause  seems  to  have  been  an  undue 
increase  of  bonds  and  a  resulting  narrowing  of  the  margin  of  earnings 
above  fixed  charges,  making  stocks  unduly  speculative  and  bonds  less 
secure.  For  this  condition  unwise  state  regulation  may  share  the 
blame  with  the  railroad  companies.1  Some  railroad  men  have  been 
virtually  demanding  that  rates  be  raised  till  the  margin  of  safety  on 
the  existing  (swollen)  bond  issues  was  as  great  as  on  former  more 
modest  issues,  so  that  present  capital  needs  could  be  met  by  issuing 
still  more  bonds,  while  stockholders  pocketed  the  increased  margin 
of  safety  in  the  shape  of  larger  dividends.  This  is  obviously  not  the 
best  way  out  of  the  difficulty. 

In  1916  earnings  were  the  highest  on  record,  and  those  of  1917 
were  higher  yet.  But  the  winter  of  1917-18  brought  heavy  losses,  and 
the  increase  of  rates  made  by  Mr.  McAdoo  was  no  more  than  enough 
to  offset  prospective  increases  in  costs.  Regulating  commissions 
would  probably  have  waited  to  see  the  increases  materialize  before 
granting  higher  rates  to  offset  them,  and  this  delay  might  have  been 
disastrous  in  our  present  emergency.  But  there  are  reasons  why  a 
commission  should  be  slow  in  letting  private  railroads  raise  their 
rates,  which  do  not  apply  to  roads  under  federal  operation.  Granting 
that  the  increase  may  prove  unnecessarily  large,  Mr.  McAdoo  can 
(i)  put  as  much  of  the  money  as  he  likes  back  into  the  properties,  and 

1  For  a  further  treatment  of  this  problem,  though  not  including  the  most 
recent  developments,  see  the  Report  of  the  Railroad  Securities  Commission. 


368  ECONOMICS  OF  WAR 

(2)  since  he  has  possession  of  the  properties  the  government  can  make 
whatever  terms  seem  reasonable  in  turning  back  to  private  ownership 
these  betterments  made  out  of  current  earnings.  Under  private 
ownership  such  betterments  become  the  property  of  the  companies, 
included  in  the  valuation  on  which  they  must  be  allowed  a  fair  return, 
and  commissions  may  well  be  slow  to  "make  the  shippers  pay"  for 
betterments  in  which  these  shippers  have  no  equity  and  on  which 
they  must  go  on  paying  dividends.  Thus  it  is  not  fair  to  argue  that 
because  certain  things  were  done  by  the  Federal  Railroad  Adminis- 
tration, therefore  it  would  have  been  right  or  expedient  to  allow  the 
roads,  while  still  in  private  hands,  to  do  these  same  things. 

XLI.    The  Shipping  Problem 
i.    THE  WAR  AND  WORLD-SHIPPING1 

•Gross  Tons 

World's  shipping  (except  German  and  Austrian)  August  i,  1914.  42,574,537 

Additional  ships  built,  August,  igi4-December  31,  1917 6,621,003 

German  and  Austrian  interned  ships  available  for  use  of  Allies . .        875,000 


Total 50,070,540 

Losses  since  1914. 

Due  to  ordinary  causes 1,600,000 

Due  to  mines,  raiders,  and  submarines: 

Allies 8,900,119* 

Norway 1,031,778 

Other  neutrals 400,000 

Total 11,931,897 


Balance  actual  tonnage  available. 38,138,643 

Net  decrease  since  1914 .- 4,435,894 

Add  2  tons  constantly  required  to  maintain  each  man  in  France 

(1,500,000  menX2) 3,000,000 

Shortage  for  merchant  traffic,  at  least r . . . .     7,435,894 

*  To  October,  1917. 

2.     GREAT  BRITAIN'S  SHIPPING  PROBLEM,  191  f 

To  counteract  the  submarine  menace,  the  Shipping  Controller 
has  succeeded,  first  of  all,  in  reorganising  the  shipping  of  this 
country  by  means  of  better  loading,  by  taking  ships  off  longer 
voyages  and  concentrating  them  on  shorter  voyages,  and  by  turning 

1  From  a  pamphlet  entitled  Ships,  distributed  by  Emergency  Fleet  Corporation, 
July,  1918. 

a  By  David  Lloyd  George.  Adapted  from  "Fact  v.  Fiction,"  Mr.  Lloyd 
George's  Statement  on  Shipping  and  Food  Supplies,  House  of  Commons,  Thursday, 
August  16,  1917. 


TRANSPORTATION  369 

ships  round  more  quickly  so  that  they  should  be  able  to  make 
more  voyages  in  the  course  of  the  year.  Although  we  have  a 
diminished  tonnage,  we  have  been  able  by  these  means  to  carry 
more  tons.  Our  shipping  in  June  and  July  of  this  year  (1917), 
compared  with  June  and  July  of  last  year,  is  something  like  10  per 
cent  down,  and  as  there  is  no  diminution  in  the  tonnage  which  is 
devoted  to  the  carriage  of  government  material  for  our  armies  abroad, 
this  means  that  the  diminution  in  the  tonnage  available  for  ordinary 
imports  is  down  not  by  10  per  cent  but  by  20  per  cent.  In  spite  of 
this  fact  we  succeeded  in  carrying,  during  the  period  which  I  have 
indicated,  150,000  more  tons  in  British  ships. 

In  addition  to  this,  the  Shipping  Controller  has  taken  steps  for 
the  quickening  of  shipbuilding.  The  tonnage  built  in  this  country 
during  peace  times  is,  I  think,  on  an  average  something  a  little  under 
2,000,000.  In  1915  the  shipbuilding  came  to  688,000  tons.  In  1916 
it  was  538,000  tons.  In  this  year  a  little  over  a  million  tons,  nearly 
1,100,000  tons,  will  be  built  in  this  country  and  330,000  tons  will  be 
acquired  abroad,  so  that  this  year  the  tonnage  which  we  shall  acquire 
will  be  1,900,000.  This  is  purely  mercantile  marine.  Bear  in  mind 
the  condition  under  which  the  tonnage  is  built.  It  is  the  fourth  year 
of  the  war.  There  is  a  difficulty  in  labour  and  great  difficulty  in 
material.  You  require  steel  for  guns  and  shells  for  the  Navy,  because 
the  ship-building  programme  of  the  Navy  has  gone  up  considerably 
in  the  course  of  the  present  year.  In  spite  of  that  fact  the  shipbuilding 
of  the  country  in  this  year  will  not  be  very  far  from  what  it  was  in  the 
days  of  peace. 

Even  now  we  have  not  got  enough  tonnage  for  all  essential 
purposes.  We  have  got  to  provide  tonnage  for  France,  Italy,  and 
Russia,  as  well  as  for  ourselves,  and  we  need  more  ships  instead  of 
fewer  ships.  And  I  am  not  going  to  pretend  that  there  will  not  be  at 
best  a  rate  of  diminution  of  our  shipping  which  will  embarrass  us 
in  the  struggle,  and  therefore  it  is  essential,  not  merely  that  this 
country  should  build,  but  that  the  only  other  countries  which  have 
a  great  shipbuilding  capacity  should  also  build.  If  the  United  States 
of  America  puts  forth  the  whole  of  her  capacity,  and  I  have  no  doubt, 
from  what  I  hear,  that  she  is  preparing  to  do  it  in  her  own  thorough 
and  enterprising  way,  I  have  no  doubt  at  all  that  we  shall  have  suffi- 
cient tonnage  not  merely  for  this  year  but  for  the  whole  of  1918  and, 
if  necessary,  for  1919  as  well,  because  America  can  expand  very 
considerably  her  shipbuilding  capacity  if  the  real  need  ever  arises 
for  her  to  do  so. 


370  ECONOMICS  OF  WAR 

3.    THE  SHIPPING  PROBLEM  OF  THE  UNITED  STATES' 

Shipping  is  the  limiting  factor  in  our  participation  in  the  war. 
Not  only  does  the  number  of  men  whom  we  may  place  in  the  trenches 
depend  upon  the  shipping  available  for  their  transport,  but  their 
maintenance  is  also  rigidly  determined  by  shipping  considerations. 
Various  calculations  of  the  tonnage  required  to  maintain  continuously 
each  combatant  in  active  service  have  been  made,  ranging  from  two 
to  fourteen  gross  tons  per  man.2  Among  the  things  to  be  shipped  to 
maintain  each  combatant  are  guns,  ammunition,  food,  clothing, 
hospital  supplies,  motors,  gasoline,  horses  and  mules,  fodder,  railway 
supplies,  and  mail  for  the  fighting  men  and  the  men  behind  the  lines. 
To  maintain  an  American  army  of  five  million  men  in  the  field  will 
therefore  require  from  ten  to  twenty-eight  million  tons  of  shipping. 
If  we  choose  the  latter  figure,  it  is  roughly  two-thirds  of  the  total 
world's  shipping,  exclusive  of  Germany  and  Austria,  in  August,  1914. 

The  shipping  problem  may  be  summarized  as  follows:  The 
materials  and  supplies  for  war  must  pass  through  a  narrow-necked 
bottle  on  the  way  to  Europe,  and  the  rate  at  which  this  neck  expands 
will  determine  the  rate  at  which  we  can  effectively  mobilize  our 
resources  for  war  purposes.  Now,  to  increase  our  shipping  capacity 
as  rapidly  as  is  required  involves  not  only  speeding  up  the  work  in 
existing  yards  but  also  enlarging  our  shipbuilding  facilities  by  divert- 
ing labor  and  capital  from  less  essential  work.  It  means  that  parts 
of  ships  must  be  manufactured  by  industrial  plants  wherever  read- 
justment for  such  work  is  practicable.  It  means,  further,  that 
imports  and  exports  of  nonessentials  must  be  curtailed  in  many 
instances,  to  the  end  that  tonnage  may  be  released  for  war  business. 
And  the  restrictions  of  these  imports  and  exports  in  turn  necessitates 
readjustments  in  the  domestic  industries  dependent  upon  such  trade ; 
the  labor  and  capital  employed  in  such  industries  must  be  diverted 
to  the  production  of  forms  of  war  materials  for  which  they  may  be 
adapted.  In  short,  the  problem  before  us  is  nothing  less  than  the 
organizing  of  all  the  productive  resources  of  the  United  States  of 
America  with  a  single  end  in  view — that  of  building  a  bridge  of  ships 
across  the  Atlantic  and  sending  across  that  bridge  in  minimum  time 
a  maximum  of  troops  and  supplies. 

1  An  editorial. 

2  From  a  pamphlet  entitled  Ships,  distributed  by   the  Emergency    Fleet 
Corporation,  July,  1918. 


TRANSPORTATION  371 

It  has  been  estimated  that  in  the  year  1918  the  United  States 
could  produce  three  times  as  much  munitions  and  materials  as  could 
possibly  be  shipped  to  Europe,  though  this  estimate  has  had  to  be 
changed  because  of  the  release  of  shipping  for  transatlantic  routes  on 
the  part  of  both  England  and  the  United  States  through  a  restriction 
of  imports.1  But  whatever  the  figures,  it  is  certain  that  our  entire 
program  of  industrial  mobilization  waits  on  shipping. 

XLII.     Questions  of  Method 
i.    SHIPBUILDING  STRATEGY2 

Even  to  the  kind  of  person  who  knows  what  a  million  tons  of 
shipping  looks  like,  mere  figures  can  give  no  adequate  picture  of  the 
problems  raised  by  our  shipping  situation.  Questions  arise  as  to  the 
best  organization  for  the  work,  the  best  kinds  of  ships  to  build,  and 
the  best  methods  of  construction:  problems  with  an  economic  side, 
yet  not  to  be  settled  by  the  ready-made  economic  formulas.  As  for 
organization,  we  might  have  relied  wholly  on  private  enterprise,  but 
there  are  general  reasons  why  this  method  does  not  mobilize  industry 
as  industry  must  be  mobilized  for  modern  war,3  and  there  is  no  ade- 
quate ground  for  ignoring  these  facts  in  the  special  case  of  shipping. 
It  does  not  need  enormous  freight  rates  to  tell  us  that  shipping  is  the 
weakest  link  in  the  Allies'  chain  of  war  resources  and  should  be 
granted  the  very  first  grade  of  priority. 

The  best  design  of  ships  is  partly  a  matter  of  naval  tactics,  calling 
for  'ships  that  can  escape  the  submarine  if  possible,  or  ships  that  can 
keep  afloat  after  being  torpedoed,  or  ships  that  are  uniform  enough  in 
speed  to  lend  themselves  to  the  convoy  system.  It  is  partly  a  matter 
of  harmonious  use  of  the  available  resources,  so  that  the  building  of 
hulls  will  not  outstrip  the  building  of  engines,  nor  the  program  be 
partly  nullified  by  an  unexpected  shortage  of  some  one  limiting  factor, 
whether  it  be  ways  on  which  to  build  the  ships,  or  houses  for  laborers 
in  the  shipyards,  or  riveters,  or  crews  for  the  ships  after  construction, 
or  skilled  ship-carpenters  or  special  shapes  of  timber  for  wooden  ships. 

1  The  restriction  of  imports  under  orders  No.  i  and  No.  2  of  the  United  States 
Shipping  Board  will  release  shipping  to  maintain  in  France  continuously  in  the 
neighborhood  of  200,000  men,  while  the  great  increase  in  troop  movements  from 
April  to  August  was  largely  made  possible  by  the  curtailment  of  British  foreign 
trade. 

'2  An  editorial.  J  See  chaps,  iii  and  iv,  above.1 


372  ECONOMICS  OF  WAR 

All  these  things  call  for  a  unified  plan  and  a  national  policy,  in  which  all 
the  information  that  is  to  be  had  on  all  these  matters  is  brought  to  bear 
on  the  signing  of  every  contract  and  the  driving  of  every  rivet. 

American  shipping  is  in  the  hands  of  the  United  States  Shipping 
Board,  and  shipbuilding  is  in  the  hands  of  the  Emergency  Fleet 
Corporation,  created  and  controlled  by  the  Shipping  Board  but  in 
effect  almost  a  co-ordinate  arm  of  the  federal  government.  Ships 
have  been  commandeered  from  enemy  owners  and  from  neutrals,  and 
ships  under  construction  have  been  taken  over,  even  when  they  were 
being  built  for  our  Allies.  This,  of  course,  carries  with  it  an  obligation 
to  see  that  American  tonnage  is  utilized  as  effectively  as  allied  tonnage 
for  furthering  the  common  cause  and  is  not  used  to  carry  nonessential 
freight.  So  far  (July,  1918)  the  ships  actually  built  and  finished  under 
contract  for  the  Shipbuilding  Corporation  have  been  very  few  com- 
pared to  those  requisitioned,  but  the  construction  of  ships  under 
contract  is  growing  rapidly,  and  as  a  result  of  such  measures  the 
governments  of  the  United  States  and  of  their  Allies  have  control 
of  by  far  the  greater  part  of  the  free  shipping  of  the  world. 

What  sort  of  ships  should  be  built?  Small  boats  of  only  one 
thousand  tons,  were  suggested,  with  speed  enough  to  outrun  the 
submarines.  Not  very  economical  cargo-carriers,  to  be  sure,  but 
the  submarines  could  not  sink  so  many  tons  of  this  kind  of  shipping, 
and  price  was  not  the  vital  issue.  It  soon  became  clear,  however, 
that  the  nation  could  not  afford  to  build  such  boats,  not  because  of 
the  extravagant  outlay  of  money,  but  because  of  the  more  funda- 
mental thing  of  which  the  money  outlay  is  only  a  symptom;  namely, 
the  need  of  getting  the  greatest  possible  freight-carrying  capacity 
out  of  a  limited  supply  of  steel,  labor,  shipyard  capacity,  and,  more 
than  all  else,  engines  and  the  capacity  to  produce  them.  For  as 
Secretary  Daniels  said:  "We  [the  Navy]  can  build  hulls  faster  than 
we  can  build  machinery.  The  same  is  true  of  the  shipping  board." 
Under  these  circumstances  we  simply  could  not  afford  to  use  engines 
to  drive  small  ships  at  high  speed,  especially  as  the  increase  in  speed 
would  be  very  small  compared  with  the  increased  ratio  of  horse-power 
to  tonnage.  The  plants  making  engines  can  turn  out  more  horse- 
power in  large  engines  than  in  small  ones,  and  a  given  amount  of 
horse-power  can  drive  more  tons  of  freight  in  large  hulls  than  in  small 
ones.  If  the  plan  for  a  vast  fleet  of  mosquito-freighters  meant  that 
we  should  put  the  same  cargo-carrying  capacity  in  a  more  expensive 
form,  we  could  find  the  money  to  pay  for  it,  but  it  would  really  have 


TRANSPORTATION  373 

meant  fewer  tons  of  shipping  turned  out,  since  no  amount  of  money 
would  give  us  engines  vastly  beyond  our  present  output,  steel  beyond 
our  present  consumption,  yards  with  vastly  more  ways  than  we  now 
have,  and  men  to  build  and  man  the  ships  and  officers  to  navigate 
them.  For  in  all  these  respects  we  are  already  doing  our  best,  sparing 
no  outlay.  Thus  we  are  forced  to  build  ships  large  enough  to  be 
economical,  even  though  we  feel  that  war  is  no  time  to  skimp  expense 
on  vital  war  necessities,  because  we  must  needs  count  the  resources  the 
expenses  represent. 

The  war  demand  has  stimulated  builders  to  try  new  forms  of 
ships,  thus  hastening  the  progress  of  the  science  of  shipbuilding 
perhaps  by  decades.  The  shortage  of  steel  has  led  to  the  use  of  wood 
and  concrete,  raising  highly  interesting  structural  and  economic 
problems,  while  the  "fabricated  ship"  of  steel  is  a  new  departure, 
made  possible  by  quantity  production  and  making  possible  in  turn 
unheard  of  speed  in  construction.  To  be  sure,  the  saving  of  time  on 
the  ways  gives  an  exaggerated  picture  of  speeding-up,  because  the 
building  of  the  ship  is  really  begun  before  the  keel  is  laid,  and  the  new 
method  means  that  a  larger  part  of  the  work  is  put  upon  the  plants 
where  the  parts  are  made  ready.  It  has  been  estimated  that  90 
per  cent  of  the  work  on  a  "fabricated"  ship  can  be  done  away  from 
the  yards.  But  this  in  itself  is  a  gain,  and  saving  of  time  on  the  ways 
is  peculiarly  important.  The  larger  the  percentage  of  the  work  that 
is  pushed  back  into  fabricating  plants  and  the  shorter  the  actual  time 
on  the  ways,  the  fewer  ways  need  be  built.  If  the  fabricating  plants 
are  in  existing  industrial  centers  instead  of  at  the  shipyards,  the  need 
of  new  housing  is  considerably  reduced.  In  building  re-enforced- 
concrete  ships  a  new  kind  of  concrete  is  used,  very  smooth,  tough,  and 
elastic.  Concrete  has  proved  its  usefulness  for  barges  and  has  worked 
well  with  small  steamers,  but  it  has  yet  to  be  tried  on  a  large  scale 
in  transatlantic  carriage,  and  important  technical  questions  are  still 
unsettled. 

Wooden  ships  raised  further  questions.  A  plan  for  a  thousand 
such  ships  was  made  by  engineers  of  the  Shipping  Board,  and  wooden 
shipbuilding  was  begun  by  the  British  in  Canadian  yards  while  the 
unrestricted  submarine  campaign  was  still  young.  At  that  time  the 
supply  of  steel  was  largely  pre-empted  for  naval  vessels  and  other  uses 
and  there  was  not  enough  available  for  an  adequate  program  of  steel 
merchant  ships,  though  later  large  amounts  were  released  for  this 
purpose.  Whatever  could  be  done  with  wooden  ships  would  be,  for 


374  ECONOMICS  OF  WAR 

some  time  at  least,  practically  clear  gain,  since  the  two  types  do  not 
compete  for  materials,  for  labor  (so  far  as  labor  immediately  available 
is  concerned),  or  for  yard  space  (in  existing  yards). 

But  the  hand  labor  used  in  old-fashioned  wooden  shipbuilding  is 
well-nigh  a  lost  art,  and  the  special  sizes  and  shapes  of  timber  required 
are  not  easily  to  be  had.  The  Pacific  Coast  had  tried  successfully  a 
new  type  of  ship,  somewhat  less  graceful  in  shape  but  using  a  higher 
percentage  of  standard  sizes  and  shapes  of  timber  and  calling  for  less 
of  the  expert  hand-labor  of  the  old-fashioned  ship-carpenter.  A  ship 
of  this  sort,  with  improvements,  was  designed  for  the  Fleet  Corpora- 
tion and  some  contracts  were  let.  The  rival  design  was  of  the  more 
traditional  sort,  and  the  then  head  of  the  Fleet  Corporation  (not 
himself  a  shipbuilder)  seemed  to  feel  a  natural  conservatism  about 
committing  himself  to  a  design  that  was  said  to  be  not  quite  "the 
best,"  though  admittedly  perfectly  seaworthy  and  practicable.  The 
wooden-ship  program  was  curtailed,  and  not  until  we  had  been  at 
war  for  more  than  a  year  was  a  program  adopted  as  ambitious  as  the 
original  project  of  a  thousand  ships.  By  this  time,  however,  we  have 
learned  to  shape  the  timbers  in  sawmills  and  to  do  the  final  fitting, 
if  any  is  needed,  with  an  electric  "dubbing"  machine  or  an  air-driven 
planer  or  bevelling  side-head,  thus  making  the  old-fashioned  expert 
adze-man  unnecessary.  Pneumatic  calking  tools  and  paint  sprayers 
further  speed  the  work. 

Forms  of  contracts  made  further  difficulty.1  Builders  wanted  the 
payment  to  cover  cost  plus  10  per  cent,  while  the  Fleet  Corporation 
wanted  builders  to  undertake  delivery  at  a  fixed  lump  sum.  As  a 
matter  of  fact,  neither  form  of  contract  was  the  best  for  just  this 
emergency,  but  it  takes  time  to  consider  and  adopt  new  forms,  and 
since  the  Fleet  Corporation  did  not  have  such  forms  already  worked 
out,  there  was  delay. 

The  housing  problem  presented  another  dilemma.2  It  was  an 
unprecedented  industrial  mobilization,  and  the  army  must  have 
cantonments  wherever  existing  housing  could  not  be  stretched  to  meet 
the  emergency  need.  But  while  houses  were  needed  before  anything 
else  if  they  were  needed  at  all,  it  sometimes  took  time  and  experience 
to  prove  that  they  were  needed;  that  the  workmen  could  not  "find  a 
place  somewhere"  satisfactorily,  and  that  it  did  not  pay  to  force  them 
to  ride  long  distances  to  their  work  in  overcrowded  conveyances. 

1  See  "Forms  of  Contracts,"  selection  LVI,  4. 

2  See  Section  LX. 


TRANSPORTATION  375 

In  all  these  matters — designs  of  ships,  forms  of  contracts,  and 
housing  policy — we  have  "lost"  time,  not  because  there  was  not 
enough  knowledge  in  the  country  to  meet  the  emergency,  but  rather 
because  the  existing  knowledge  was  not  in  the  places  and  in  the  form 
in  which  it  would  do  the  most  good.  The  authorities  had  not  pos- 
sessed themselves  of  it,  focussed  the  light  from  many  sources  on  the 
task  of  emergency  mobilization,  and  achieved  in  advance  and  at 
leisure  the  matured  judgments  and  formulated  plans  which  might 
have  prevented  costly  mistakes  and  far  more  costly  delays. 

Construction  has  gone  ahead  as  fast  as  our  economic  and  govern- 
mental system  could  push  it,  but  not  as  fast  as  our  resources  and 
technical  knowledge  would  have  permitted  if  we  had  had  organized 
preparedness  of  ideas,  statistics,  contract  forms,  and  plans.  We  have 
had  no  economic  general  staff  to  make  plans,  in  times  of  peace,  for 
the  economic  mobilizations  of  war,  but  if  preparedness  for  war  is  to  be 
our  future  destiny,  it  will  be  plain  that  such  economic  mobilization 
plans  are,  if  anything,  more  important  for  the  United  States  than  the 
purely  military  plans  which  our  existing  war  college  is  charged  to 
provide.  How  such  plans  can  best  be  provided,  utilized,  modified, 
and  supplemented,  or  perhaps  even  discarded,  in  emergenices  is  a 
difficult  question  of  administration.  Under  the  wrong  system 
bureaucratic  fossilization  might  do  even  more  harm  than  our  unpre- 
paredness,  which  may  have  caused  some  waste  motion  but  has 
nevertheless  achieved  results  larger  than  many  an  official  would  have 
dared  to  plan  for. 

2.    A  SHIP  BUILT  IN  TWENTY-SEVEN  DAYS1 

The  fastest  job  of  shipbuilding  ever  done  was  the  construction  of 
the  steel  steamship  "Tuckahoe,"  5,500  tons,  dead  weight,  at  Camden, 
NJ.  Her  keel  was  laid  on  April  8,  1918,  she  was  launched  on  May  5, 
just  27  days,  3  hours,  and  43  minutes  after  the  laying  of  the  keel,  and 
10  days  later,  on  May  15,  was  delivered,  complete  in  every  detail,  after 
a  trial  trip,  to  the  United  States  Shipping  Board.  One  week  later  she 
was  starting  on  her  first  voyage  with  cargo.  The  best  previous  record 
for  the  launching  of  a  steel,  ocean-going  ship  was  55  days,  made  at 
Seattle  earlier  in  the  spring  of  this  year;  the  average  time,  even  under 
forced  speed,  is  about  100  days. 

The  rapid  construction  of  the  "Tuckahoe"  is  a  demonstration 
of  the  possibilities  inherent  in  the  method  of  shipbuilding  that  has 

1  Adapted  from  World's  Work  (July,  1918),  p.  329. 


376 


ECONOMICS  OF  WAR 


come  to  be  known  as  the  "fabricated"  ship — that  is,  a  ship  built  to  a 
standard  plan,  with  every  part  cut  and  fitted  before  being  put  into 
place,  whether  at  rolling  mills  many  miles  away  from  the  shipyard  or 
in  shops  directly  connected  with  the  yards.  It  happens  that  the 
New  York  Shipbuilding  Corporation,  which  built  the  "Tuckahoe, " 
has  its  own  fabricating  plant,  although  not  of  sufficient  capacity  to 
keep  up  a  supply  of  standard  parts  for  all  the  ships  it  has  under 
construction  at  one  time.  At  Hog  Island,  Port  Newark,  and  most  of 
the  other  new  emergency  shipyards,  dependence  is  placed  for  stand- 
ardized parts  on  steel  mills  situated  elsewhere. 


XLIII.     The  Race  between  Building  and  Sinking 
i.    A  YEAR'S  DECLINE  IN  SHIPPING  LOSSES 

The  world's  shipping  suffered  a  net  loss  of  2,632,279  tons  from 
the  beginning  of  the  war  to  April  i,  1918,  the  greater  part  of  this 
having  occurred  since  the  beginning  of  the  unrestricted  submarine 


CROSS 
TONNAGE 
1,000,000 

900,000 

1917 
APR.       MAY     JUNE    JULY     AUG.     SEPT. 

1918 
OCT.       NOV       DEC.      JAN.       FEU.      MAR.     APR. 

,'\ 

TOT  A  I 

700,000 

600,000 
500,000 
400,000 
300,000 
200.000 
100.000 

A  LI 

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EUTKA 

I..  ANL 

B1UTI! 

11 

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V 

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—-»       . 

warfare  which  brought  America  into  the  war.  This  loss  is  partly  due 
to  England's  having  increased  her  naval  building  at  the  expense  of 
merchant  tonnage.  While  naval  construction  must  not  be  neglected, 
some  building  capacity  can  be  turned  back  to  merchant  shipbuilding 
in  case  of  extreme  need.  However,  in  April,  1918,  Great  Britain  and 
the  United  States  built  40,000  tons  more  shipping  than  was  lost,  and 
American  construction  is  still  rapidly  increasing. 


TRANSPORTATION  377 

2.    OUR  GREAT  SHIPBUILDING  VICTORY1 

In  an  Independence  Day  speech  Secretary  of  the  Navy  Josephus 
Daniels  said  in  part: 

The  gross  tonnage  of  merchant  ships  built  in  the  United  States  since  the 
commencement  of  the  European  War  is  2,722,563  tons,  1,736,664  gross  tons 
of  which  have  been  built  since  the  entry  of  the  United  States  into  the  war. 
In  addition  to  the  tonnage  thus  built,  650,000  tons  of  German  shipping 
have  been  taken  over.  This  does  not  include  the  tonnage  acquired  in 
Dutch,  Japanese,  and  other  vessels.  It  will  be  of  further  interest  to  know 
that  to-day  there  will  be  launched  in  the  great  shipyards  of  this  country 
over  400,000  dead-weight  tons.  These  figures  are  in  addition  to  those 
previously  given. 

At  San  Francisco  on  July  4,  Mr.  Charles  M.  Schwab,  director- 
general  of  the  Emergency  Fleet  Corporation,  said: 

In  1915  all  the  shipyards  in  America  turned  out  215,602  dead-weight 
tons  of  shipping.  The  next  year  our  output  jumped  to  520,847  tons.  In 
1917  the  hot  pace  continued  until  we  very  nearly  doubled  the  output  of  the 
previous  year,  completing  a  total  of  901,223.  I  am  confident  now  that  if 
we  pull  together  and  every  man  stays  on  the  job  we  will  produce  more  than 
3,000,000  dead-weight  tons  in  1918 — the  greatest  output  of  any  nation  in 
the  world  in  a  single  year. 

3.     RESULTS  OF  SHIPPING  PROGRAM,  JULY,  i9i82 

WASHINGTON,  July  9. — Completion  of  twenty-three  ships  of 
122,771  dead- weight  tons  in  the  first  week  of  July  made  a  total  of  223 
new  vessels  built  under  the  direction  of  the  Shipping  Board.  Their 
aggregate  tonnage  is  1,415,022.  Of  the  new  fleet,  218  vessels  already 
are  in  actual  service. 

The  July  production  is  at  the  rate  of  more  than  3,000,000  tons  for 
the  remainder  of  the  year,  and  if  this  pace  is  maintained  by  the 
rapidly  expanding  shipyards  the  year's  output  will  be  close  to  5,000,- 
ooo  dead-weight  tons. 

The  first  week's  total  in  July  comprised  fourteen  requisitioned  steel 
vessels  and  five  contract  steel  vessels,  with  an  aggregate  tonnage  of 
108,271,  and  four  wooden  ships  of  14,500  tons. 

A  total  of  1 24  wooden  ships  has  been  launched  to  date.  Twenty- 
four  steel  ships  have  been  built  on  contract,  the  -  remainder  being 
requisitioned  vessels. 

1  Adapted  from  the  Literary  Digest  (July  13,  1918),  p.  n. 

2  Adapted  from  the  Chicago  Herald  Examiner,  July  10,  1918. 


378  ECONOMICS  OF"  WAR 

Chairman  Hurley,  after  a  visit  to  the  White  House  to-day, 
announced  that  the  Shipping  Board  had  let  contracts  for  ninety-two 
army  transports. 

Deliveries  will  be  made  before  December  31,  1919.  A  number 
of  the  transports  are  building  on  the  Pacific  coast. 

LONDON,  July  9. — Speaking  in  the  House  of  Commons  to-day, 
Sir  Leo  Money,  parliamentary  secretary  to  the  ministry  of  shipping, 
said  the  percentage  of  ships  lost  while  homeward  bound  to  the  United 
Kingdom  since  January  i,  1918,  was  rather  more  than  i  per  cent. 
The  losses  of  food  ships  for  the  same  period  was  less  than  i .  4  per  cent. 

The  result  of  the  convoy  system,  Sir  Leo  declared,  continued  to 
improve.  Since  January,  1917,  when  the  system  was  put  into  effect, 
42,000,000  gross  tons  had  been  convoyed  to  British  and  French  ports 
with  a  loss  up  to  June  29  of  1.29  per  cent.  This  included  loss  by 
bad  weather. 

XLIV.    How  the  Allies  Control  International  Shipping1 

In  order  to  organize  the  economic  resources  and  the  national 
machinery  of  production  of  other  friendly  nations  in  co-ordination 
with  our  war-time  nationalization  of  industry,  food,  railways,  and 
capital,  for  effective  concentration  of  these  to  war's  purposes,  our 
government  has  the  War  Trade  Board,  the  Food  and  Fuel  Adminis- 
trations, the  Foreign  Exchange  Control,  and  the  Shipping  Commission 
all  working  closely  together  in  policy  and  method.  The  result  seems 
to  be  a  pretty  well-centralized  management  of  the  big  foreign  activities 
connected  with  our  economic  mobilization. 

Shipping  men  of  extensive  activities  have  the  opportunity  of 
seeing  something  of  the  way  this  works.  The  United  States  govern- 
ment, in  co-operation  with  its  Allies,  now  has  at  service  pretty  nearly 
every  ship  of  any  nation  that  sails  the  oceans.  By  an  agreement  with 
Norway,  Holland,  and  Sweden  over  two  million  tons  of  their  shipping 
have  been  directly  chartered.  We  have  agreed  not  to  send  some  ships 
into  the  war  zone.  They  are  working  over  peaceful  areas  of  the  world 
for  us.  But  through  control  of  bunker-coal  supplies,  or  by  the  right 
to  refuse  entrance  and  clearance  to  shipping  in  our  own  harbors,  we 
are  able  to  hold  out  inducements  such  as  to  make  it  possible  for  our 
consulates  even  in  neutral  countries  to  have  practical  first  say  over 

1  Adapted  from  an  editorial  in  The  Americas,  March,  1918.  Copyright  by  the 
National  City  Bank,  New  York. 


TRANSPORTATION  379 

available  ships.  Our  War  Trade  Board  would  refuse  license  to  ship 
coal  except  under  agreement  by  which  the  Shipping  Board  controls 
even  foreign  supplies  of  it.  A  vessel  in  a  foreign  harbor  whose  services 
are  desired  for  our  government's  purposes  finds  it  impractical  to  refuse. 
A  ship  sailing  from  a  United  States  port  does  so  under  license,  and  with 
its  arrangements  for  return  voyage  all  made  for  it  by  order  of  the 
Shipping  Board,  unless,  indeed,  the  Board  finds  more  urgent  service 
after  it  has  gone  and  cables  new  orders  for  the  return.  In  addition 
to  the  employment  of  shipping  for  taking  out  and  bringing  in  cargoes 
in  accordance  with  the  wide-stretching  plan  of  international  war- 
industry,  we  have  obligated  ourselves  to  supply  certain  European 
neutrals  with  food,  and  in  recent  weeks,  on  government  order,  wheat 
has  been  coming  by  ship-loads  from  Argentina  for  transshipment  at 
some  Atlantic  port.  It  comes  up  in  the  neutral  vessels,  which  cannot 
enter  the  war  zone,  and  is  transshipped  to  ships  of  the  American, 
British,  or  French  flags  for  crossing  the  Atlantic.  The  Food  and 
Fuel  Administrations  are  of  course  interested  and  in  consultation. 
So  are  the  organizations  of  the  War  Department  whose  business  it  is 
to  keep  war-production  going.  They  probably  use  judgment,  as  week 
after  week  brings  new  conditions,  whether  they  most  need  hides,  or 
mahogany,  or  manganese,  or  wool,  or  nitrate,  and  in  co-operation  the 
different  parts  of  the  executive  machinery  work  together  to  do  the  big 
business  without  interference  of  orders. 


X 
WAR  FINANCE 

Introduction 

It  is  significant  that  war  finance  finds  so  tardy  a  consideration  in  a 
study  of  the  economics  of  a  world- war.  In  the  old  days  preparedness 
for  conflict  largely  depended  upon  the  size  of  the  war  chest  possessed 
by  the  king.  With  funds  in  hand  he  induced  the  service  of  mercenary 
legions  and  procured  the  necessary  supplies  in  foreign  as  well  as 
domestic  markets.  Under  these  circumstances  money  appeared  the 
very  essence  of  military  strength.  At  the  beginning  of  the  present 
war  this  inherited  view  of  the  significance  of  money  colored  the  think- 
ing alike  of  statesman,  financier,  and  layman.  In  those  long-ago  days 
of  1914,  how  ominous  seemed  that  war  chest  of  $30,000,000  at  Span- 
dau ;  and  how  encouraging  the  statement  of  Lloyd  George  that  while 
England  might  raise  the  first  £100,000,000  no  more  easily  than 
Germany,  it  would  be  the  last  £100,000,000  that  would  win  the  war, 
and  here  England's  financial  superiority  would  manifest  itself.  With 
what  confidence  at  the  time  of  our  entrance  into  the  war  did  we  not 
view  our  own  financial  strength:  we  could  raise  billions  of  revenue  for 
the  use  of  Uncle  Sam  and  furnish  in  addition  billions  of  "credit"  to 
our  distressed  Allies.  If  the  problems  that  have  been  under  considera- 
tion in  the  preceding  chapters  of  this  volume  have  not  already  revealed 
to  every  student  of  war  that  money  is  not  a  basic  factor — that  it  is 
merely  a  convenient,  if  not  always  a  satisfactory,  mechanism  for 
accomplishing  the  fundamental  work  that  needs  to  be  performed — it 
is  believed  that  the  first  division  of  this  chapter  will  serve  to  indicate 
the  true  function  of  finance. 

While  the  service  performed  by  money  is  a  secondary  or  inter- 
mediate one,  it  is  none  the  less  important  that  war  be  financed  on 
sound  principles;  for  ill-conceived  financial  methods  may  delay  the 
mobilization  of  industry,  impair  the  effectiveness  of  the  entire  eco- 
nomic organization,  and  cause  the  grossest  injustice  as  between 
different  classes  of  people.  It  is  the  purpose  of  Sections  XL VI  to 
L  to  present  the  leading  views  and  opinions  on  the  complicated 
questions  here  involved. 

380 


WAR  FINANCE  381 

The  readings  show  that  conflicting  views  still  prevail  in  respon- 
sible quarters  on  even  the  basic  principles.  The  explanation  of  this 
is  largely  attributable  to  a  confusion  of  financial  with  industrial 
problems.  Thus  the  banker  argues  (selection  XL VI,  i)  that  we 
must  let  the  next  generation  pay  the  bills,  while  the  economist 
(selection  XL VI,  2)  insists  that  under  conditions  where  it  is  impos- 
sible to  borrow  from  a  neutral  world,  war  costs  can  be  met  only  by 
present  sacrifices.  It  is  argued  on  the  one  hand  that  all  businesses 
must  be  kept  prosperous  in  order  that  revenue  may  be  abundant 
(selection  L,  i)  and  on  the  other  that  the  maintenance  of  pros- 
perity in  nonessential  industries  means  a  "treacherous"  (albeit 
unwitting)  assistance  to  the  enemy  (selection  L,  2). 

Another  difference  of  opinion  is  owing  to  a  difference  in  point  of 
view.  To  some,  war  finance  is  viewed  primarily  with  reference  to 
principles  of  justice  between  income  classes;  to  others  the  questions  of 
equality  of  sacrifice  and  ability  to  pay,  while  not  to  be  omitted  from 
the  reckoning,  are  nevertheless  of  subordinate  importance  as  com- 
pared with  a  rapid  mobilization  of  the  nation's  industries  for  the 
supreme  and  time-pressing  task  in  hand.  There  appears  to  be, 
however,  an  increasing  disposition  to  view  the  financial  problem,  not  as 
a  thing  apart,  but  as  an  aspect  of  the  one  essential  requirement — an 
effective  mobilization  of  industry. 

The  successive  Liberty  Loan  campaigns  have  resulted  in  inter- 
mittently sweeping  the  investment  markets  clean  of  funds  for  the 
uses  of  ordinary  business.  The  result  of  this  has  been  twofold: 
first  to  render  more  difficult  the  undesirable  competition  of  nonessen- 
tial industries  against  the  government;  and  secondly  to  hamper 
essential  businesses,  whose  continuance  is  of  vital  importance  to  the 
government.  It  was  to  render  assistance  to  these  necessary  industries 
that  the  War  Finance  Corporation  (Section  LI)  was  formed.  This 
is  confessedly  an  experiment  in  finance.  As  yet,  however,  it  appears 
to  have  been  of  little  service.  In  many  quarters,  indeed,  it  is  regarded 
as  an  agency  of  great  potential  danger.  Its  future  history  will  be 
viewed  with  much  interest  by  students  of  finance  generally. 


?2  ECONOMICS  OF  WAR 

XLV.    The  Function  of  War  Finance 

i.    POPULATION,  WEALTH,  INCOME,  AND  DEBTS  OF 
BELLIGERENT  COUNTRIES1 


Country 

Population 

Wealth 

Income 

Borrowings 

A.  Entente  Allies: 
United  Kingdom  

AC,  2  TO,"?  3O 

$80,000,000* 

$10,500,000* 

$19,000,000* 

France  

30,601,  zoo 

70,000,000 

6,000,000 

11,000,000 

Russia  

178,378,800 

50,000,000 

6,500,000 

13,000,000 

Italy  

36,120,118 

25,000,000 

4,000,000 

3,000,000 

Belgium  and  Serbia  

10,  •?•?<,  68? 

12,000,000 

1,250,000 

Portugal  and  Rumania  .  . 

1  3,461;,  004 

7,000,000 

600,000 

United  States     

102,826,309 

220,000,000 

38,000,000 

Entente  nations  

426,008,04.'; 

$464,000,000 

$66,850,000 

$46,000,000 

B.  Central  Powers: 
Germany  

64,Q25,QQ^ 

$87,000,000 

$10,500,000 

$15,500  ooo 

Austria-Hungary  

49,458,421 

40,000,000 

5,  500,000 

7,000,000 

Turkey  and  Bulgaria.  .  .  . 

25,611,416 

7,000,000 

1,000,000 

1,130,000 

Central  nations  

I?Q,  005,8^0 

$134,000,000 

$17,000,000 

$23,630,000 

*  ooo  omitted 


2.     CAN  CAPITAL  BE  CONSCRIPTED?2 

A  cabled  despatch  from  London,  published  in  the  Evening  Sun, 
October  9,  1917,  described  a  startling  fiscal  innovation  which  it  was 
asserted  was  to  be  proposed  by  the  government  of  Great  Britain: 
"England,"  ran  this  cable,  "is  preparing  to  conscript  capital — liter- 
ally  The  British  Government  to-day  has  practically  decided 

to  take  the  next  step  and  levy  directly  upon  capital.  Barring  a  change 
of  opinion  in  the  meantime  on  the  part  of  those  responsible  for  the 
British  financial  policy,  such  a  levy  will  be  made  soon  after  the  war 
ends."  Of  course  the  report  has  aroused  comment  in  England  as 
well  as  here.  Has  it  any  foundation  ? 

Even  should  the  war  be  brought  to  a  speedy  end,  it  is  said,  Great 
Britain  will  be  obliged  to  raise  by  taxation  £500,000,000,  or  about 
$2,500,000,000,  of  which  about  one  half  will  be  required  for  the  regular 

1  Table  prepared  by  R.  R.  McElvare  and  Louis  Gottlieb,  of  Columbia  Uni- 
versity.    In  War  Finance  Primer,   National  Bank   of  Commerce,  New  York, 
May,  1917. 

2  Adapted  from  Business  Digest,  December  12,  1917. 


WAR  FINANCE  383 

running  expenses  of  the  government  and  the  other  half  to  meet  the 
interest  on  the  war  debt. 

The  plan  seems  to  have  been  definitely  formulated  first  by  the 
Round  Table — a  group  of  the  most  intellectual  and  influential  students 
of  political  and  economic  problems  in  the  British  Empire.  The 
following  excerpt  from  their  organ,  The  Round  Table,  indicates  the 
operation  of  the  scheme: 

The  difficulty  of  applying  the  method  of  a  levy  on  capital  is  probably 
not  so  great  as  appears  at  first  sight.  Take,  for  instance,  the  case  of  the 
United  Kingdom.  The  total  capital  wealth  of  the  community  may  be 
estimated  at  about  24,000  millions  sterling.  To  pay  off  a  war  debt  of  3,000 
millions  sterling  would  therefore  require  a  levy  of  one-eighth.  Evidently 
this  could  not  be  raised  in  money,  nor  would  it  be  necessary.  Holders  of 
war  loans  would  pay  their  proportion  in  a  simple  way,  by  surrendering  one- 
eighth  of  their  scrip.  Holders  of  other  forms  of  property  would  be  assessed 
for  one-eighth  of  its  value  and  be  called  on  to  acquire  and  to  surrender  to 
the  state  the  same  amount  of  War  Loan  scrip.  To  do  this  they  would  be 
obliged  to  realize  a  part  of  their  property  or  to  mortgage  it.  But  there  is 
no  insuperable  difficulty  about  that. 

Another  exponent  of  the  conscription  plan  is  Mr.  Alfred  G.  Gardi- 
ner, editor  of  the  London  Daily  News.  He,  like  the  Round  Table, 
has  decided  that  there  is  no  other  way  open  to  the  government  except 
that  of  the  conscription  of  an  important  part  of  the  wealth  or  capital 
of  the  British  rich  and  well-to-do.  An  idea  of  how  he  would  go  about 
the  matter  may  be  derived  from  the  following  passage  in  his  article, 
"How  to  Pay  for  the  War": 

The  capital  of  the  individuals  of  the  nation  has  increased  during  the  war 
from  16  thousand  millions  to  20  thousand  millions.  A  ioper  cent  levy  on  this 
would  realize  two  thousand  millions.  It  would  extinguish  debt  to  that 
amount,  and  reduce  the  interest  on  debt  by  120  millions.  In  doing  so  it 
would  nearly  balance  our  budget  and  preserve  our  national  solvency.  The 
levy  would  be  graduated — say,  5  per  cent  on  fortunes  of  £1,000  to  £20,000, 
10  per  cent  of  £20,000  to  £50,000  up  to  30  per  cent  on  sums  over  a 
million [The  individual]  would  pay  it  in  what  ever  form  was  con- 
venient, in  his  stocks  or  his  shares,  his  houses  or  his  fields,  in  personalty  or 
realty. 

The  partisans  of  the  conscription  program  are  described  as  "con- 
siderable groups  of  the  working  class  on  the  one  hand,  and  the  social- 
istic or  semi-socialistic  improvers  of  society,  on  the  other." 


384  ECONOMICS  OF  WAR 

3.    THE  PLACE  OF  MONEY  IN  WAR  FINANCE1 

Perhaps  the  greatest  surprise  of  the  war  to  most  people,  even  to 
those  who  had  studied  political  economy,  has  been  the  enormous 
expenditure  of  money  which  a  nation  can  incur,  and  the  length  of  time 
which  it  can  go  on  fighting  without  complete  exhaustion.  This 
should  not  have  been  in  reality  a  surprise  to  anyone  who  had  studied 
past  history,  for  all  experience  shows  that  lack  of  "money"  itself  has 
never  prevented  a  nation  from  continuing  to  fight,  if  it  were  deter- 
mined to  fight.  The  financial  condition  of  Revolutionary  France  at 
the  commencement  of  Napoleon's  career  was  wretched  in  the  extreme, 
yet  France  went  on  fighting  for  nearly  twenty  years  after  that.  The 
Balkan  States  can  hardly  be  said  ever  to  have  had  great  financial 
resources,  and  yet  they  fought,  one  after  the  other,  two  severe  wars, 
and  are  now  fighting  a  third  still  more  severe  and  prolonged.  The 
Boers  in  South  Africa  found  no  difficulty  in  fighting  the  British  Empire 
for  three  years  with  practically  no  financial  resources.  The  Mexicans 
recently  managed  to  fight  one  another  for  a  good  many  years  in  the 
same  way.  Lastly,  the  Southern  states  in  your  own  Civil  War 
fought  for  years  a  desperate  and  losing  fight  and  were  ultimately 
beaten  to  the  ground,  not  so  much  by  a  lack  of  money,  as  by  an  actual 
lack  of  things  to  live  on  and  fight  with.  In  fact,  all  history  proves,  and 
this  war  proves  to  us  over  again,  that  if  what  the  Germans  call  "the 
will  to  fight"  exists  lack  of  money  will  never  stop  a  nation's  fighting, 
provided  it  possesses  or  can  obtain  its  absolutely  minimum  require- 
ments of  food,  clothing,  and  munitions  of  war.  It  was  Bismarck,  I 
think,  who  said:  "If  you  will  give  me  a  printing-press,  I  will  find  you 
the  money. ' '  No  doubt  in  finding  the  money  required  for  an  exhausting 
war  a  nation  is  driven  to  all  sorts  of  desperate  financial  expedients 
which  may  very  seriously  affect  its  economic  life,  but  in  my  opinion  if 
a  nation  wants  to  continue  fighting  and  can  produce,  or  be  induced  to 
produce,  the  things  that  are  absolutely  necessary  for  life  and  warfare, 
the  government  will  get  hold  of  those  things  somehow.  If  it  cannot 
get  them  in  any  other  way,  ultimately  it  will  take  them. 

Therefore,  though  the  mechanism  of  finance  is  exceedingly  impor- 
tant, the  vital  thing  both  for  a  country  itself  and  for  its  Allies,  is  that 
it  should  produce  and  so  have  available  everything  required  for  war, 
both  for  itself  and  for  them.  This  may  seem  an  elementary  fact,  but 
I  lay  stress  on  it  because  it  is  to  my  mind  fundamental  and  the  key 

1  By  R.  H.  Brand  (see  p.  191).  From  an  unpublished  address  before  the 
American  Bankers  Association,  September,  1917. 


WAR  FINANCE  385 

to  the  actions  of  a  government  at  war.  If  the  goods  are  not  there  or 
cannot  be  obtained  from  other  countries  in  some  way  or  other,  no 
method  of  financing  will  avail  at  all.  The  all-important  thing  is 
therefore  the  annual  production  of  the  people  for  war,  and  the  amount 
of  that  production  which  is  left  over  after  satisfying  civil  consumption 
and  which  is  available  for  the  war  needs  of  the  nation  itself  or  of  its 
Allies.  In  other  words,  the  all-important  thing  is  that  the  government 
should  assist  in  the  development  of  the  maximum  productive  capacity 
of  the  nation,  should  direct  that  productive  capacity  into  channels 
suitable  for  war,  and  should  restrict  entirely  the  consumption  of 
nonessentials. 

4.     HOW  THE  GOVERNMENT  USES  THE  MONEY1 

Someone  has  said — I  think  it  was  Napoleon — that  three  things 
are  necessary  to  wage  a  war  successfully:  money,  more  money,  and 
still  more  money.  There  is  a  great  deal  of  truth  in  this  statement  in 
ordinary  wars,  but  as  applied  to  the  United  States  in  the  present 
conflict  it  is  entirely  misleading.  Money  is  of  paramount  importance 
when  a  nation  may  buy  its  war  supplies  from  abroad.  England  and 
France,  for  instance,  before  our  entrance  into  the  war,  purchased 
with  money  vast  quantities  of  war  supplies  from  the  United  States. 
But  it  is  impossible  for  us  to  use  money,  to  any  great  extent,  in  buying 
goods  from  other  nations,  for  the  simple  reason  that  the  entire  com- 
mercial world  is  now  at  war.  With  his  money  Uncle  Sam  can  buy 
war  supplies  only  from  himself.  There  are  of  course  a  few  exceptions 
to  this,  such  as  nitrates  and  rubber,  but,  substantially  speaking, 
Uncle  Sam  must  produce  all  the  things  which  he  is  to  use  in  the  war. 
We,  the  people,  turn  funds  into  the  Treasury  and  then  Mr.  McAdoo 
buys  from  us  the  supplies  needed.  The  amount  that  he  can  buy  is 
determined,  in  practice,  by  the  amount  of  war  supplies  we  have 
produced.  Similarly,  when  we  extend  credit  to  our  Allies  we  really 
say  to  them,  We  will  furnish  you  with  materials  and  supplies  now  and 
you  may  pay  for  them  after  the  war  is  over.  This  point  must  be 
strongly  emphasized;  for  many  people  fancy  that  furnishing  credit 
to  our  Allies  means  merely  sending  them  money,  or  perhaps  some  sort 
of  draft  or  credit  instrument.  In  the  last  analysis  it  always  means 
that  we  send  them  goods,  which  they  are  to  pay  for  at  some  future 
time.2 

1  An  editorial.  *  Cf.  Section  XVII,  p.  178. 


386  ECONOMICS  OF  WAR 

5.    RELATION  OF  BANK  CREDIT  TO  WAR  FINANCE1 

There  is  something  so  plausible  and  insidious  about  the  idea  of 
financing  the  war  by  having  the  banks  create  new  credit  that  the 
stern  alternative  of  cutting  down  the  use  of  credit  for  other  purposes, 
and  of  curtailing  all  business  but  that  which  supports  the  war,  has  a 
poor  chance  of  popular  favor  beside  it. 

What  is  the  objection  to  a  pyramid  of  credit,  based  upon  govern- 
ment bonds  and  consisting,  first,  of  individual  credit,  second,  of 
member  bank  credit,  and,  finally,  of  reserve  bank  credit,  all  backed 
by  the  taxing  power  and  the  power  to  issue  money  ?  What  can  be 
better  than  such  a  combination  as  this?  Why  not  finance  the  war 
in  this  way  ? 

The  answer  is  that  this  pyramid  of  credit  cannot  add  one  day's 
work  to  the  industrial  resources  of  the  country.  The  entire  program 
upon  which  the  government  is  proposing  to  spend  about  $20,000,000,- 
ooo  this  year  is  all  a  matter  of  days'  work.  In  times  of  peace  the 
labor  of  the  country  is  employed  in  private  operations.  The  pro- 
duction consists  in  part  of  necessaries  for  immediate  consumption,  in 
part  of  luxuries,  and  in  part  of  additions  to  the  productive  equipment. 
Now  comes  the  war,  and  the  government  wants  to  take  over  a  great 
portion  of  the  working  force  and  also  asks  the  people  to  turn  into  the 
Treasury  money  enough  to  pay  it.  The  rational  way  of  complying 
with  this  request  would  seem  to  be,  first,  to  cut  out  the  production  of 
luxuries  or  nonessentials;  second,  to  cut  down  the  additions  to  per- 
manent improvements  and  equipment,  restricting  them  to  such  only 
as  will  aid  in  carrying  on  the  war  and  the  essential  industries;  third,' 
to  keep  enough  people  employed  upon  necessaries  to  support  the 
country  and  the  Army,  and  to  put  all  the  others  on  war  work;  fourth, 
to  turn  into  the  Treasury  through  taxes  and  loans  the  money  which 
was  previously  paid  to  the  people  now  released  from  private  service 
to  war  work;  since  we  are  no  longer  expending  it  in  the  old  way  we 
can  let  the  government  have  the  use  of  it.  The  account  balances. 
The  country  has  simply  diverted  purchasing  power  from  one  class  of 
work  to  another. 

The  other  way  of  meeting  the  government's  appeal  for  help  is 
to  say,  as  considerately  as  possible  and  with  all  possible  assurance  of 
patriotism,  that  we  are  sure  that  if  allowed  to  continue  our  industries 
and  occupations  as  usual  we  shall  be  able  to  do  a  great  deal  more  for 

'Adapted  from  the  February  (1918)  circular  of  the  National  City  Bank  of 
New  York. 


WAR  FINANCE  387 

the  government  than  we  possibly  can  if  we  are  interfered  with; 
therefore  we  offer  to  cooperate  in  setting  up  this  pyramid  of  credit  and 
challenge  the  world  to  show  wherein  this  credit  is  defective  or  insuffi- 
cient. We,  as  individuals,  will  give  our  notes  to  our  bankers,  the 
latter  will  lend  us  the  credit  with  which  to  buy  government  bonds,  and 
we  will  deposit  the  bonds  with  our  notes  as  collateral  security;  the 
bankers  can  rediscount  these  notes  at  the  Federal  Reserve  banks,  and 
thus  recoup  themselves  for  the  advances  they  have  made;  and,  finally, 
the  Federal  Reserve  banks,  on  the  strength  of  the  government  bonds 
in  their  possession  and  by  virtue  of  the  power  to  issue  money,  can 
furnish  the  currency  to  pay  all  bills. 

The  object  of  this  elaborate  scheme — this  pyramid  of  credit — is 
to  supply  the  government  with  the  means  to  go  off  and  fight  the  war  by 
itself,  leaving  us,  the  people,  to  go  on  with  business  as  usual,  undis- 
turbed. The  only  weakness  in  the  scheme  is  that  it  does  not  provide 
the  government  with  army,  navy,  or  equipment.  These  can  be  had 
only  by  taking  men— labor — out  of  peace  employments  and  placing 
them  in  the  employ  of  the  government.  But  when  this  is  done,  they 
go  off  our  private  pay-rolls  and  upon  the  government's  pay-rolls,  and 
if  we  will  now  pay  into  the  Treasury  what  we  formerly  paid  to  them, 
or  for  the  things  they  were  making,  there  will  be  no  need  for  a  pyramid 
of  credit. 

XLVL    Can  the  Cost  of  the  War  Be  Postponed? 

i.    THE  BURDEN  SHOULD  BE  SHIFTED  TO  THE 
FUTURE1 

There  are  two  main  sources  through  which  the  financing  of  a  war 
may  be  accomplished.  One  is  the  sale  of  securities — bonds  and  war 
savings  stamps;  the  other,  the  collection  of  taxes.  It  is  not  simply 
a  matter  of  getting  the  money  or  credit  to  pay  war  bills,  but  how  to 
get  it  with  the  greatest  assurance  that  we  are  adding  to  our  fighting 
efficiency. 

Experience  teaches  that  it  is  not  best  to  put  an  undue  strain 
upon  any  business  organization  by  using  its  working  capital  too  closely. 
The  better  policy  is  to  go  into  the  money  market  and  borrow  new 
capital,  if  the  business  needs  expanding,  either  by  making  loans  at  the 

1  By  George  M.  Reynolds,  from  the  Chicago  Tribune,  July  8,  1918. 
ED.  NOTE. — Mr.  Reynolds  is  president  of  the  Continental  and  Commercial 
Bank  of  Chicago,  and  one  of  the  best-known  bankers  in  America. 


388  ECONOMICS  OF  WAR 

bank  or  by  selling  securities.  In  this  war  enterprise  the  government, 
made  up  of  all  the  people  and  all  the  industries  in  the  country,  repre- 
sents the  business  organization,,  which,  necessarily,  has  been  expand- 
ing tremendously  since  we  entered  the  war,  and  the  problem  is,  How 
far  can  we  go  in  using  up  the  working  capital  of  the  people  and  the 
industries  through  the  tax-levying  power,  which  takes  this  working 
capital  without  leaving  an  equivalent  against  which  loans  might  be 
secured  ? 

If  we  pay  taxes  we  have  nothing  left  but  the  receipt;  if  we  buy 
government  bonds  we  have  the  obligation  of  the  richest  government 
on  earth,  an  obligation  that  is  good  as  collateral  for  the  loan  of  new 
credit  to  replace  that  used  in  paying  for  the  bonds.  A  man  with  a 
hundred,  a  thousand,  or  a  hundred  thousand  dollars'  worth  of  Liberty 
bonds  feels  the  optimism  born  of  the  possession  of  property,  whether 
he  expects  to  use  the  bonds  as  collateral  or  not;  -and  in  this  struggle 
we  must  not  quench  optimism,  for  it  is  back  of  the  national  morale 
which  strengthens  the  Army  and  Navy. 

We  now  have  all  the  worries  and  hardships  of  the  actual  fighting, 
and  we  ought  to  avoid  making  them  unduly  burdensome.  It  is  only 
just  that  we  spread  the  financial  problem  over  a  number  of  years 
through  obtaining  a  very  liberal  part  of  our  war  funds  by  the  sale  of 
bonds. 

The  administration,  the  Treasury,  and  the  Congress  are  in  posses- 
sion of  more  of  the  facts  than  the  rest  of  us  and  are  better  able  to 
decide  how  far  we  may  safely  go  in  levying  taxes.  The  principle  to 
be  observed,  and  no  doubt  the  one  they  will  endeavor  to  follow,  is 
that  taxes  should  not  be  so  heavy  as  to  curtail  production. 

2.  THE  BURDEN  CANNOT  BE  POSTPONED1 

The  most  basic  fact  which  must  be  borne  in  mind  in  discussing 
this  problem  is  that,  for  the  people  considered  as  a  whole,  domestic 
borrowing  postpones  no  burden  to  the  future.  This  really  follows 
at  once  from  the  fact  that  only  goods  produced  before  or  during  the 
war  or  men  living  during  the  war  can  be  used  in  conducting  the 
conflict.  We  cannot  shoot  a  shell  to  be  made  in  1930.  The  future 
is  not  here  to  bear  burdens.  Of  course  borrowing  abroad  does  make 
it  possible  to  postpone  the  burden  of  the  home  country. 

1  By  E.  Dana  Durand.  Adapted  from  "Taxation  versus  Bond  Issues  for 
Financing  War,"  Journal  of  Political  Economy,  XXV  (November,  1917),  883-916. 

ED.  NOTE. — Mr.  Durand,  professor  of  political  economy  at  the  University 
of  Minnesota,  is  now  serving  as  expert  in  the  Food  Administration. 


WAR  FINANCE  389 

Borrowing  at  home,  so  far  as  a  nation  as  a  whole  is  concerned,  is 
precisely  similar  to  borrowing  by  an  individual  from  himself.  The 
reason  the  individual  may  gain  by  borrowing  is  because  he  borrows 
from  another  person.  Would  John  Smith  gain  anything  by  writing 
a  note  to  this  effect:  "Fifty  years  from  date  I  and  my  heirs  promise 
to  pay  to  myself  and  my  heirs  $1,000  with  interest  at  6  per  cent"? 
So  far  as  the  nation  as  a  nation  is  concerned,  a  government  bond  issued 
at  home  is  precisely  similar  to  such  a  note  in  its  effect. 

This  idea  that  the  burden  of  war  expenditures  can  be  deferred  to 
future  generations  is  the  supreme  fallacy  of  finance.  Many  a  business 
man  whom  we  have  every  reason  to  consider  sincere  insists  that  he 
is  willing  to  bear  his  full  and  just  share  of  the  war  burdens,  but  adds 
that  he  can  see  no  fairness  in  making  the  present  generation  bear  the 
entire  cost  of  the  war,  when  the  future  generations  are  equally  to 
profit  by  it.  The  future  generations  will,  to  be  sure,  have  their  burden 
from  this  war.  They  will  have,  in  all  probability,  a  somewhat 
depleted  heritage  of  capital.  But  the  future  generations  cannot  repay 
to  the  present  generation  its  outlay  in  the  conduct  of  the  war. 

Conceive,  for  example,  that  the  present  generation  should  wholly 
pass  away  in  forty  years.  If  war  bonds  still  remained  unpaid,  the 
next  generation  would  have  to  bear  taxes  to  pay  interest  and  principal. 
But  it  would  be  paying  to  itself;  it  would  have  inherited  the 
bonds  as  well  as  the  taxes.  What  it 'paid  would  not  be  a  burden  on 
the  people  of  that  generation  as  such.  It  would  not  be  repaying 
the  present  generation.  The  fact  that  generations  gradually  merge 
into  one  another  does  not  change  in  the  slightest  the  logic  of  the 
matter. 

The  same  argument  which  applies  to  the  future  generations  applies 
as  well  to  the  future  years  of  the  present  generation.  Professor 
Seligman,  among  others,  is  not  disposed  to  favor  long-term  bonds,  but 
urges  short-time  bonds  in  preference  to  taxes  for  a  large  part  of  the 
war  expenditure.  He  says  it  would  be  easier  for  the  people  to  pay 
for  the  war  in  ten  years  than  in  three,  assuming  that  it  is  over  in  three 
years.  As  a  matter  of  fact,  for  the  people  considered  as  a  whole  it 
would  not  be  one  whit  easier.  What  the  people  as  a  whole  receive  as 
interest  and  principal  repayment,  that  they  must  also  pay.  They 
defer  no  burden  by  the  short-time  bonds. 

The  controversy  which  is  now  raging  between  the  advocates  of 
taxation  and  the  advocates  of  bond  issues  as  a  means  of  war  financing 
results  in  part  from  lack  of  clear  thinking  and  in  part  from  the  con- 
flicting interests  of  individuals  and  classes.  Confusion  of  thought  is 


3QO  ECONOMICS  OF  WAR 

probably  the  principal  source  of  conflict.  There  is  no  economic 
subject  as  to  which  fallacies  are  more  widespread  and  deep-seated. 

We  shall  clarify  our  thought  if  with  some  precision  we  consider, 
first,  the  sources  from  which  funds  for  war  expenditures  can  be  drawn. 
It  should  be  observed  that  this  inquiry  comes  substantially  to  the 
same  thing  as  an  inquiry  regarding  the  sources  from  which  the  labor 
and  the  commodities  for  war  uses  can  be  obtained.  What  the  govern- 
ment needs  for  war  is  not  money  but  men  and  goods. 

The  only  important  source  of  funds  for  war  expenditure  consists 
of  the  surplus  of  current  income — the  excess  of  the  income  of  the 
people  above  their  other  expenditures  during  the  actual  war  period. 
This  again  is  the  same  thing  as  saying  that  it  is  chiefly  by  the  diversion 
of  the  current  productive  power  of  the  nation  to  war  channels  that 
the  war  must  be  provided  with  men  and  supplies.  The  surplus  of 
income  represents  the  surplus  of  labor  performed  and  commodities 
produced  during  the  war  which  are  not  used  for  non-war  purposes. 

A  surplus  of  current  income  available  for  war  expenditure  may  be 
obtained  in  three  ways:  first,  by  an  increase  of  production  through 
speeding  up;  second,  by  saving  in  consumption;  and  third,  by 
reducing  the  investment  of  new  capital  in  non-war  enterprises. 

It  has  been  estimated  by  the  National  City  Bank  that  approxi- 
mately $5,000,000,000  of  the  annual  income  of  the  country  is  in  normal 
times  devoted  to  new  investments.  It  is  a  familiar  fact  that  many 
persons  of  large  income  invest  annually  from  half  to  nine-tenths  of 
their  income.  Much  as  we  should  prefer  not  to  check  our  industrial 
progress,  we  must  remember  that  the  very  fate  of  all  our  past  invest- 
ments— indeed  the  fate  of  the  nation  itself — is  at  stake  in  the  war,  and 
that,  purely  from  the  material  standpoint,  it  is  good  economy  to  spend 
what  is  necessary  to  save  them,  even  if  we  temporarily  forego  industrial 
expansion.  It  is  probable,  in  fact,  that  the  largest  one  source  of  funds 
for  the  conduct  of  the  war  will  have  to  be  found  in  the  diversion  of  the 
surplus  income  which  ordinarily  goes  into  investment. 

Sources  of  war  revenue  other  than  the  surplus  of  current  national 
income  are,  for  the  most  part,  either  not  available  for  the  United 
States  or  comparatively  unimportant. 

In  the  first  place,  it  is  evident  that  a  war  might  be  financed  in  part 
by  the  accumulation  by  the  government  of  great  quantities  of  muni- 
tions and  other  supplies  during  previous  times  of  peace.  That  means 
preparedness.  That  our  government  has  done  very  little  in  this 
direction  is  all  too  obvious. 


WAR  FINANCE  391 

In  the  second  place,  a  war  may  be  financed  to  some  extent  by 
borrowing  abroad,  by  securing  the  surplus  of  the  income  of  foreign 
countries  on  promise  of  repayment  out  of  future  income  of  the  home 
country.  It  is  obvious  that  the  United  States  could  not  now,  if  it 
would,  use  this  means  of  war  finance;  on  the  contrary,  it  is  under  the 
necessity  of  itself  lending  heavily  to  its  Allies. 

In  the  third  place,  some  writers,  lay  considerable  stress  on  the 
thought  that  previous  accumulations  of  private  capital  may  furnish 
an  important  means  of  war  finance.  Professor  Seligman,  for  example, 
in  his  recent  brochure,  How  to  Finance  the  War,  suggests  that  there 
may  be  a  large  loan  fund  in  existence,  the  accumulated  profits  of 
recent  years  which  have  not  yet  been  invested,  the  use  of  which  in 
payment  of  subscriptions  to  the  loan  involves  simply  a  change  of 
investment  from  private  enterprise  to  government  service. 

This  suggestion  rests  in  considerable  part  on  a  confusion  between 
individual  economy  and  the  economy  of  society  as  a  whole.  There 
is  not  at  any  one  time  a  very  large  uninvested  surplus  of  previous 
income.  The  individual  may  have  a  large  amount,  say,  of  last  year's 
income  deposited  in  a  bank  or  invested  in  a  temporary  loan.  He 
expects  to  withdraw  the  deposit  or  to  collect  the  loan  later  and  to 
make  a  more  permanent  investment.  For  him  it  is  an  available 
surplus.  Meantime,  however,  the  money  is  being  used.  It  is  repre- 
sented by  fixed  or  circulating  capital  in  the  hands  of  borrowers  from 
the  bank  or  from  the  individual  capitalist.  If  the  owner  of  the 
surplus  income  withdraws  it  from  the  bank  or  from  the  loan  to  buy 
government  bonds  or  otherwise  finance  the  war,  the  borrowers  must, 
primarily  from  the  surplus  of  their  current  income,  repay  what  they 
have  borrowed.  Current  income  must,  for  the  most  part,  foot  the 
bill. 

Again,  Professor  Henry  C.  Adams  suggests  that,  while  we  cannot 
convert  fixed  capital  into  war  supplies,  it  is  possible  to  do  so  with 
circulating  capital.  Such  a  process,  however,  has  very  narrow  limits. 
Circulating  capital,  in  the  last  analysis,  consists  essentially  of  partly 
finished  products,  of  stocks  of  finished  consumable  goods,  and  of 
finished  capital  goods  of  certain  kinds  not  yet  actually  in  productive 
use.  The  total  of  such  products  and  goods  in  the  country  at  any  one 
time  probably  represents  only  a  fraction  of  one  year's  income.  Many 
of  them  are  not  adapted  to  war  uses.  Besides,  only  a  comparatively 
small  part  of  them  can  be  dispensed  with.  They  are,  in  the  main,  a 
part  of  the  necessary  means  of  conducting  business.  At  the  utmost, 


392  ECONOMICS  OF  WAR 

it  would  scarcely  be  possible  to  finance  more  than  part  of  the  first 
year  of  a  war  through  the  use  of  previously  accumulated  circulating 
capital. 

Another  way,  comparatively  unimportant,  in  which  previously 
accumulated  capital  may  be  made  a  source  of  war  revenue  is  by 
allowing  fixed  capital  to  depreciate  during  the  war.  However,  so 
far  as  such  fixed  capital  is  used  in  necessary  production,  a  policy  of 
this  kind  would  soon  prove  disastrous.  It  would  before  long  result 
in  a  reduction  of  current  income. 

The  conclusion  seems  to  be,  therefore,  that  the  surplus  of  current 
income  must  be  the  principal  source  of  funds  for  the  financing  of  the 
present  war.  The  fundamental  question  is  whether  that  surplus  shall 
be  obtained  for  government  use  by  borrowing  it  or  by  taxation. 

XL VII.    Bonds  or  Taxes  in  What  Proportion? 
i.     CONSCRIPTION  OF  INCOME1 

Conscription  of  men  should  logically  and  equitably  be  accom- 
panied by  something  in  the  nature  of  conscription  of  current  income 
above  that  which  is  absolutely  necessary.  The  obligation  that  each 
citizen  furnish  the  state  in  time  of  war  a  large  portion  of  his  current 
income  manifestly  would  impose  no  more  oppressive  burden  than  the 
obligation  of  military  service.  To  be  sure,  the  pressing  necessity 
which  leads  to  compulsory  service  is  absent,  since  it  is  possible  to 
finance  a  war  by  means  of  borrowing.  Yet  as  a  permanent  war- 
finance  policy  borrowing  has  limitations  which  should  exclude  it  from 
any  comprehensive  scheme  of  military  preparedness.  Modern  wars 
are  so  enormously  costly  that  a  country  which  resorts  to  borrowing 
has  not  merely  created  for  itself  a  difficult  problem  of  taxation  after 
the  return  of  peace;  it  has  also  placed  itself  in  a  financial  position 
which  will  make  it  exceedingly  difficult  to  find  the  money  to  maintain 
and  improve  its  military  establishment  in  future  years.  Purely  as  a 
military  measure,  then,  the  conscription  of  income  during  a  war  should 
be  adopted,  unless  such  a  policy  would  prove  in  any  way  a  serious 
obstacle  to  the  effective  conduct  of  hostilities. 

The  injustice  of  treating  those  who  provide  the  funds  for  war 
purposes  more  generously  than  those  who  risk  life  itself  will  not  be 

1  By  O.  M.  W.  Sprague.  Adapted  from  "The  Conscription  of  Income," 
Economic  Journal  (March,  1917),  pp.  5-6. 

ED.  NOTE. — Mr.  Sprague  is  professor  of  political  economy  at  Harvard  Uni- 
versity. 


WAR  FINANCE  393 

questioned.  Consider  for  a  moment  the  contrast  under  the  borrowing 
method  of  war  finance  between  a  soldier  in  receipt  of  an  income  of 
500  pounds  before  a  war  and  his  neighbour  who  remains  at  home  in 
continued  receipt  of  a  similar  amount.  The  civilian  reduces  his 
expenditure  in  every  possible  way  and  subscribes  a  total  of  800 
pounds  to  a  war  loan.  He  is  rewarded  with  a  high  rate  of  interest,  to 
which  his  soldier  neighbour  must  contribute  his  quota  in  higher  taxes 
if  he  is  fortunate  enough  to  return  from  the  front.  The  contrast 
becomes  still  greater  if,  as  often  happens,  the  income  of  the  stay-at- 
home  increases  during  the  war  and  if  he  is  able  to  secure  a  superior 
position.  On  the  other  hand,  the  soldier  often  finds  it  difficult  to 
secure  a  position  as  good  as  that  from  which  he  was  taken  at  the 
beginning  of  the  war. 

2.     TAX  POLICY  IS  MOST  EQUITABLE1 

While  domestic  bond  issues  postpone  no  burdens  to  the  future  as 
such,  they  do  make  possible  a  readjustment  of  the  war  outlay  as. 
between  individuals  and  classes  in  the  community.  The  really 
fundamental  questions  involved  in  the  issue  of  taxation  versus 
borrowing  as  a  means  of  war  finance  are  questions  of  social  justice  in 
the  distribution  of  burdens.  The  war  must  be  paid  for  now,  but  there 
may  be  a  reassessment  of  expenses  among  us  afterward.  For  instance, 
those  who  have  paid  more  in  the  first  place  may  be  recouped  by  those 
who  have  paid  less.  We  shall  all  have  bought  our  chips,  but  we  may 
still  play  to  see  who  gets  and  who  loses  them. 

If  we  could  assure  ourselves  that  the  distribution  of  taxes  after 
the  war  would  be  as  just  as  the  distribution  of  taxes  during  the  war, 
there  would  be  little  choice  between  taxation  and  borrowing,  were  it 
not  for  the  fact  that,  by  inflating  prices,  bond  issues  cause  injustice 
as  between  individuals  and  classes,  a  point  which  will  be  discussed 
later. 

Most  of  what  will  be  said  with  regard  to  the  relative  advantages 
of  bonds  and  of  taxation  has  particular  reference  to  that  part  of  war 
expenditures  which  is  paid  for,  in  the  first  instance,  out  of  the  surplus 
of  the  current  income  of  the  people.  To  the  extent  that  previously 
accumulated  capital  can  be  and  is  to  be  taken  for  financing  the  war, 
it  should  be  obtained  by  borrowing  and  not  by  taxation.  It  may  be 
suggested,  however,  that  if  the  advantages  of  taxation  over  borrowing 

1  By  E.  Dana  Durand.  Adapted  from  "Taxation  versus  Bond  Issues  for 
Financing  the  War,"  Journal  of  Political  Economy,  XXV  (November,  1917), 
893-902. 


394  ECONOMICS  OF  WAR 

as  a  means  of  securing  the  surplus  of  current  income  should  appear 
material,  we  ought  seriously  to  question  the  wisdom  of  trying  to  induce 
men  to  contribute  out  of  their  capital  by  offering  bonds,  many  of 
which  of  course  will  be  bought  at  the  same  time  by  others  out  of 
income.  At  any  rate,  the  policy  of  issuing  bonds  for  this  purpose 
may  well  be  confined  to  the  early  stages  of  the  war,  during  which,  in 
any  case,  it  is  difficult  to  get  the  taxing  machinery  into  shape  to  collect 
adequate  funds. 

The  two  fundamental  questions  in  the  issue  of  taxation  versus 
borrowing  are:  In  the  first  place,  is  the  ultimate  assessment  of  the 
burden  of  war  expense  on  a  highly  progressive  principle  socially  just  ? 
In  the  second  place,  is  it  feasible  to  collect  by  taxation  any  such  pro- 
portions of  the  income  of  the  several  classes  as  it  would  be  necessary 
to  collect  if  no  bonds  were  issued  ? 

We  certainly  could  not  collect  the  entire  cost  of  the  war  by  taxa- 
tion unless  we  levied  taxes  at  highly  progressive  rates.  Is  this  a  fair 
distribution?  Or  would  it  be  more  fair  that  part  of  the  moneys 
which  the  more  well-to-do  contributed  should  be  later  repaid  to  them 
by  the  less  wealthy  ? 

Most  of  us,  business  men  and  economists  alike,  believe  in  some 
measure  of  progression  in  the  taxes  for  war  purposes,  whether  levied 
during  the  war  or  after  its  close.  The  only  difference  among  us  is 
usually  a  matter  of  degree.  If,  as  is  pretty  generally  conceded,  the 
principal  measure  of  just  distribution  in  taxation  is  the  ability  to  pay, 
the  degree  of  sacrifice  involved  in  the  payment,  the  rich  man  unques- 
tionably may  properly  be  called  on  to  pay  a  materially  larger  propor- 
tion of  his  income  as  a  tax  than  the  poor  man.  To  take  from  a  man 
who  has  an  income  of  $600  a  tax  of  $60  cuts  distinctly  into  his  standard 
of  living;  it  makes  him  forego  what  are  virtual,  if  not  absolute, 
necessities.  To  take  from  a  man  who  has  an  income  of  $100,000  a 
tax  of  $10,000  involves  little,  if  any,  reduction  in  his  standard  of 
living;  in  all  probability  it  means  merely  a  reduction  in  the  invest- 
ments which  he  makes  out  of  income — a  slowing  up  in  the  rate  of 
accumulation  of  his  wealth  and  of  increase  in  his  income.  The 
sacrifice  of  the  poorer  man  is  far  greater  than  that  of  the  richer. 

The  principle  of  equality  of  sacrifice  justifies  a  very  considerable 
measure  of  progression  in  tax  rates,  even  for  ordinary  peace  expendi- 
tures. For  war  expenditures  the  argument  in  favor  of  progression 
is  still  stronger,  and  a  more  rapid  rate  of  progression  is  justifiable. 
For  in  war  time  the  need  of  the  nation  is  so  great  that  it  calls  upon 
multitudes  of  its  citizens  for  the  greatest  of  all  sacrifices,  that  of  their 


WAR  FINANCE  395 

very  lives.  The  welfare  of  the  entire  country,  both  for  the  present 
and  for  the  future,  is  at  stake.  It  is  the  duty  of  every  citizen  to  share 
in  war's  burdens  to  his  utmost.  There  is  no  definable  limit  to  his 
obligation.  The  citizen  who  contributes  even  his  entire  income 
beyond  what  is  necessary  to  subsistence  itself  does  less  than  the  citizen 
who  contributes  himself  to  the  nation. 

If  conscription  of  men  is  justifiable,  conscription  of  income  is  a 
logical  corollary.  This  slogan  has  been  attacked  in  some  quarters 
on  the  ground  that  it  assumes  that  only  the  poorer  men  will  be  con- 
scripted to  fight.  It  is  urged,  and  rightly  enough,  that,  as  a  matter 
of  fact,  the  rich  are  equally  subject  to  conscription,  and  indeed  are 
quite  as  likely  as  the  poor  cheerfully  to  devote  their  lives  to  the 
nation's  service.  But  has  this  criticism  any  real  validity?  The 
principle  of  conscription  implies  the  justice  of  demanding  from  each 
citizen  all  that  he  can  give,  both  of  personal  service  and  of  money 
contribution,  not  the  one  as  a  substitute  for  the  other.  It  is  the  duty 
of  the  poor  man,  if  called  upon,  to  give  what  he  can  spare  from  his 
income,  and  his  life  as  well,  and  it  is  the  duty  of  the  rich  man  to  do  the 
same.  We  ask  of  each  citizen  to  sacrifice  his  all,  if  need  be,  for  his 
fellow-men  and  his  posterity. 

In  discussing  the  social  justice  of  a  system  of  war  financing  we 
may  properly  consider,  moreover,  the  ultimate  effect  upon  the  distri- 
bution of  wealth  and  income  among  classes  of  the  community. 
Many,  if  not  most,  of  us  believe  that,  quite  regardless  of  the  methods 
by  which  the  more  well-to-do  have  obtained  their  wealth  or  obtain 
their  present  incomes,  the  inequality  in  income  as  among  the  various 
classes  is  greater  than  is  socially  desirable.  A  tremendous  gap  lies 
between  the  penury  of  the  millions  and  the  affluence  of  the  few.  We 
should  dislike  to  see  any  action  of  the  government  in  connection  with 
the  war  which  would  increase  this  disparity  of  income. 

Now  it  is  evident  that,  if  the  war  is  financed  by  bonds  with  a  view 
afterward  to  providing  for  the  debt  service  by  taxes  less  highly  pro- 
gressive than  would  be  necessary  if  the  expenses  were  met  by  taxation 
during  the  war  itself,  the  result  would  be  ultimately  to  make  the 
rich  richer.  Part,  at  least,  of  the  saving  which  they  undertook  during 
the  war  in  order  to  contribute  to  the  government's  needs  would  ulti- 
mately be  repaid  to  them  out  of  taxes  levied  upon  the  poorer  classes. 
Their  capital  would  thus  become  greater  than  it  was  before  the  war. 
After  the  taxes  for  repaying  war  bonds  had  ceased,  the  annual  income 
of  the  rich  bond-buyer  would  be  actually  greater  than  before  the  war. 
On  the  other  hand,  if  during  the  war  itself  highly  progressive  taxes 


396  ECONOMICS  OF  WAR 

were  levied  sufficient  to  meet  the  war  expenditures,  they  would  not 
serve,  in  any  appreciable  degree  at  least,  permanently  to  lessen  the 
inequality  of  income.  They  would  not  make  the  rich  permanently 
poorer.  This  statement  assumes  that  the  taxes  would  be  paid  out  of 
income,  not  out  of  capital — an  assumption  which  requires  but  insig- 
nificant qualification.  The  sacrifice  of  all  classes  would  be  temporary 
— for  the  period  of  the  war.  only.  After  the  war  expenditure  ceased 
each  class  would  be  in  the  same  relative  position  as  before.  Only 
during  the  war  would  the  income  of  the  rich  be  reduced  more  than  that 
of  the  poor. 

The  tax  policy,  then,  is  more  likely  than  the  bond  policy  to  mean 
the  ultimate  payment  of  war  burdens  in  the  manner  which  is  socially 
equitable. 

In  one  very  minor  respect  perhaps  the  reassessment  of  war 
expenses  after  the  war,  made  possible  by  the  bond  plan,  may  con- 
tribute to  justice.  There  are  at  all  times  occurring  changes  in  the 
incomes  of  individuals.  Great  fortunes  disappear.  The  newly  rich 
man  of  the  future  will  of  course  be  a  beneficiary  of  the  results  of  the 
war.  It  might  be  considered  fair  perhaps  that  out  of  his  new  riches 
he  should  contribute  large  taxes  toward  the  bonds  held  by  those  who 
furnished  funds  during  the  war.  However,  these  changes  in  the 
distribution  of  income  are  not  so  great  as  is  sometimes  supposed. 
Particularly  if  the  war  is  financed  by  short-time  bonds,  the  great  bulk 
of  the  nation's  income  will,  during  the  period  of  bond  repayment,  be 
distributed  in  substantially  the  same  fashion  as  at  present.  The  really 
important  question  regarding  the  just  assessment  of  war  burdens  does 
not  arise  out  of  changes  in  the  distribution  of  income,  but  out  of  the 
inequality  in  the  distribution  of  income.  The  important  thing  is  that 
there  should  be  a  fair  apportionment  of  taxation  as  between  the  richer 
and  the  poorer  classes.  It  is  much  to  be  feared  that  it  would  be  less 
possible  to  secure  such  a  fair  apportionment  if  the  war  expenditures 
are  reassessed  after  the  war  under  the  bond  plan  than  if  they  are 
settled,  once  for  all,  under  the  policy  of  "pay  as  you  go." 

3.    A  CRITICISM  OF  HEAVY  TAXATION1 

An  effort  has  been  made  to  commit  the  United  States  to  the  policy 
of  financing  the  war  exclusively  by  taxation.  It  is  seriously  contended 
that,  except  for  such  funds  as  are  immediately  needed,  the  whole 

'By  Charles  J.  Bullock.  Adapted  from  "Conscription  of  Income,"  North 
American  Review  (June,  1918),  pp.  895-98. 

ED.  NOTE. — Mr.  Bullock  is  professor  of  economics  at  Harvard  University. 


WAR  FINANCE  397 

expense  should  be  met  by  increasing  taxation  to  whatever  extent  may 
prove  necessary.  This  is  supposed  to  be  entirely  practicable  and 
is  claimed  to  be  the  only  plan  consistent  with  social  justice. 

The  first  argument  in  favor  of  this  proposal  is  that,  except  in  so 
far  as  a  country  can  borrow  money  abroad  and  with  it  purchase 
supplies  in  other  lands,  the  whole  burden  of  war  must  in  any  event  be 
met  as  it  goes  along,  whether  we  resort  to  loans  or  to  taxation.  The 
real  cost  of  war  consists  of  the  food,  clothing,  arms,  munitions,  and 
the  like  that  must  somehow  be  purchased  and  then  consumed  in 
military  operations.  This  burden  cannot  be  passed  along  to  the  next 
generation,  but  must  be  borne  day  by  day  as  the  war  proceeds.  Why 
not  then  finance  it  exclusively  by  taxes  and  avoid  the  delusion  that 
by  employing  loans  we  are  in  fact  passing  any  part  of  it  on  to  our 
successors  ? 

Such  reasoning,  so  far  as  it  goes,  is  correct.  But  it  does  not 
reckon  with  all  the  factors  in  the  problem.  It  deals  only  with  the 
real  costs  of  war  conceived  in  terms  of  material  commodities  and 
ignores  the  distinction  between  these  real  costs  and  the  money  costs 
into  which  they  must  be  translated  before  we  can  reason  in  terms  of 
actual  life.  We  cannot  take  it  for  granted  without  careful  investi- 
gation that  in  a  complex  state  of  society  where  business  is  transacted 
by  an  intricate  system  of  exchange  based  upon  the  institutions  of 
money  and  credit  it  is  possible  for  a  government  by  means  of  taxation 
to  transfer  abruptly,  let  us  say,  $5,000,000,000  from  the  pockets 
of  taxpayers  to  the  firing  line  without  producing  undesirable  results 
and  perhaps  disaster.  It  is  as  if  an  engineer  who  wished  to  gather 
up  a  vast  supply  of  water  from  distant  sources  and  convey  it  to  a 
reservoir  in  a  great  city  should  conclude  that  it  was  merely  a  matter 
of  transferring  so  many  gallons  of  water  from  one  point  to  another  and 
should  give  no  thought  to  the  sources  from  which  the  supply  was 
drawn  or  to  the  apparatus  through  which  it  was  distributed. 

The  question  is  one  of  the  proper  distribution  of  strain  upon  a 
complicated  business  mechanism  which  is  now  adjusted  to  work  in 
certain  ways  and  can  be  altered  only  gradually  if  we  would  avoid 
disaster.  There  are  in  the  United  States  many  people  who  have 
capital  to  lend  and  can  readily  arrange  to  have  still  more  within  a 
short  time  if  the  government  resorts  to  loans.  Borrowing  from  such 
persons  will  exert  a  certain  strain  upon  our  economic  organization, 
because  what  the  government  borrows  will  not  be  available  for  invest- 
ment in  industry.  There  are  certain  other  people  who  have  large 
incomes  of  which  a  part  would  ordinarily  be  spent  for  personal 


398  ECONOMICS  OF  WAR 

consumption  and  a  part  must  be  invested  if  industry  is  to  go  on.  The 
smallest  immediate  strain  would  probably  be  occasioned  by  borrowing 
from  the  free  capital  of  the  business  community.  We  can,  however, 
without  disturbance  to  industry,  levy  heavy  taxes  which  will  reach 
income  that  would  otherwise  be  devoted  to  personal  consumption,  and 
we  can  steadily  increase  the  amount  of  such  taxation  as  time  goes  on. 
The  most  serious  strain  is  that  which  would  arise  from  "conscripting" 
income  that  would  otherwise  be  devoted  to  the  maintenance  and 
development  of  industry;  and  this  we  should  seek  to  minimize,  even 
though  we  may  not  be  able  wholly  to  avoid  it.  The  whole  machine 
must  be  readjusted  if  a  long  war  is  to  be  financed,  and  we  shall  wreck- 
it  if  we  apply  undue  pressure  at  the  wrong  point,  especially  during  the 
first  year. 

The  second  argument  for  exclusive  reliance  upon  taxation  is  that 
public  loans  are  likely  to  lead  to  inflation,  which,  of  course,  will 
increase  the  cost  of  living  and  the  cost  of  conducting  the  war.  When 
bonds  are  floated,  credit  is  extended  by  banks  to  subscribers,  and  the 
securities,  when  issued,  become  collateral  for  loans.  Thus  public 
borrowing  leads  to  an  expansion  of  bank  credit  and  tends  to  raise  the 
general  level  of  prices.  That  this  may  happen  to  some  extent  cannot 
be  doubted;  but  it  is  to  be  remembered  that  such  loans  must  presently 
be  repaid,  and  that  many  borrowers  will  economize  in  expenditures  in 
order  to  make  such  payment.  To  the  extent  that  this  occurs,  private 
expenditures  will  be  curtailed  and  the  credits  given  by  banks  will  be 
canceled  without  causing  inflation.  Furthermore  it  is  not  to  be 
overlooked  that,  in  view  of  the  large  demand  for  food  and  other  com- 
modities during  the  next  year  it  is  desirable  that  production  shall  be 
kept  at  a  maximum  and  that  higher  prices  will  conduce  to  this  result. 
The  evil  then  is  not  so  great  as  might  be  supposed,  and  it  has  important 
compensations.1 

Since  we  are  going  to  conscript  many  men  for  service  at  the  front, 
where  some  of  them  must  sacrifice  their  lives,  it  is  argued  that  we 
must  similarly  conscript  the  wealth  required  for  war  expenditures 
rather  than  obtain  it  from  loans  attracted  by  the  lure  of  interest. 
Conscription  of  income  is  declared  to  be  the  logical  accompaniment 
of  conscription  of  men,  and  loans  are  held  to  be  contrary  to  the  plainest 
dictates  of  justice. 

If  this  were  merely  another  way  of  stating,  although  with  unneces- 
sary circumlocution-,  that  in  time  of  war  every  citizen  should  hold  his 

1  ED.  NOTE.— Cf.  selection  XLVIII  below. 


WAR  FINANCE  399 

life  and  property  at  the  disposal  of  the  government,  we  could  accept 
it  as  entirely  true  and  also  entirely  useless  as  a  principle  of  war  finance. 
The  sacrifice  of  life  and  the  sacrifice  of  property  are  things  essentially 
disparate,  to  which  the  idea  of  equality  is  wholly  inapplicable.  To 
men  who  lose  their  lives  at  the  front  we  can  offer  nothing  but  grateful 
remembrance  and  suitable  provision  for  those  whom  they  leave 
behind.  Upon  those  who  stay  at  home  we  must  impose  the  duty  of 
providing  the  necessary  supplies,  but  we  can  derive  no  rule  of  con- 
tribution from  a  comparison  of  the  two  kinds  of  sacrifice. 

4.    DESTRUCTION  OF  CAPITAL:   A  BUSINESS  VIEW1 

There  are  sound  reasons  why  an  important  share  of  the  expenses 
of  the  war  should  be  raised  by  taxation  during  the  war.  Most  lines 
of  business  are  under  extraordinary  stimulus,  profits  are  larger  than 
usual,  wages  are  generally  higher,  and  the  employment  of  the  people 
is  very  complete.  Therefore  the  country  can  afford  to  pay  taxes  now 
better  perhaps  than  it  will  be  able  to  in  the  years  following  the  war, 
when  it  may  be  suffering  from  reaction.  Moreover  the  industrial 
capacity  and  labor  supply  of  the  country  are  occupied  with  war  busi- 
ness to  such  an  extent  that  it  is  impossible  to  go  ahead  with  construc- 
tive work  in  other  lines  as  usual.  The  current  income  of  the  country 
must  of  necessity  be  given  over  largely  to  the  government,  either 
through  loans  or  taxation,  to  enable  it  to  carry  on  the  war,  and  the 
proportion  between  loans  and  taxation  should  not  be  governed  by  a 
desire  either  to  favor  or  to  penalize  wealth,  but  by  the  probable 
effects  upon  the  general  welfare,  through  the  results  upon  industry, 
employment,  and  the  ability  of  the  country  to  meet  conditions  after 
the  war.  No  taxation  conceivably  possible  after  the  war  will  be  as 
important  to  the  masses  of  the  people  as  the  possible  difference 
between  a  state  of  general  industrial  activity,  with  full  employment 
to  all  the  people,  and  a  state  of  industrial  depression  such  as  this 
country  experienced  in  the  winter  of  1914-15.  Everybody  will  be 
able  to  pay  his  share  of  the  taxes  if  the  industries  are  busy  and  still 
have  a  better  living  than  he  will  have  if  the  industries  are  depressed. 

The  catch  phrases  which  are  used  show  the  same  want  of  compre- 
hension of  the  fundamental  relations  of  society  which  is  responsible 
for  most  of  the  ill-feeling  and  friction  in  the  industrial  world.  The 
agitation  is  all  based  upon  the  assumption  that  private  wealth  is 

1  Adapted  from  the  monthly  bulletin  of  the  National  City  Bank  of  New  York 
on  Economic  Conditions,  Governmental  Finance,  etc.,  June,  1917. 


400  ECONOMICS  OF  WAR 

devoted  to  the  owners,  and  that  if  it  is  taken  away  from  them,  even 
though  destroyed,  nobody  else  is  a  loser.  The  whole  idea  is  that 
the  proposed  taxation  will  reach  hidden  hoards,  or  possibly  curtail  the 
luxurious  living  of  the  rich,  with  apparently  no  appreciation  of  the 
fact  that  it  will  fall  upon  the  industrial  fund,  the  capital  available  for 
the  support  of  industry. 

Is  the  public  interested  in  the  industrial  fund  ?  Is  it  interested 
in  the  production  of  things  for  the  public  market  ?  This  is  an  oppor- 
tune time  to  ask  if  it  is  interested  in  the  supply  and  price  of  things  of 
common  consumption.  Is  the  public  interested  in  the  development 
and  improvement  of  industry,  in  the  multiplication  of  power  plants, 
and  the  enlargement  of  industrial  capacity  and  output  ?  Is  it  inter- 
ested in  the  facilities  for  transportation?  If  it  is  agreed  that  the 
public  is  interested  in  these  things  then  the  proposal  to  withdraw 
capital  in  great  amounts  from  these  purposes  should  be  considered 
with  regard  to  its  effect  upon  the  public  interests  instead  of  being 
treated  as  though  the  individual  title-holders  were  alone  concerned. 

If  this  reasoning  is  correct  the  community  should  beware  how  it 
seizes  for  current  use  upon  the  capital  which  is  certainly  destined  for 
the  industrial  fund.  To  a  very  great  extent  it  must  be  done,  but  it 
is  not  to  be  done  in  the  spirit  of  eager  confiscation  with  which  in  some 
quarters  it  is  advocated  at  the  present  time.  It  would  be  folly  to 
seize  it  upon  the  theory  that  the  public  is  really  acquiring  anything 
at  the  expense  of  the  rich  owner,  for  under  no  conceivable  circum- 
stances will  the  taxation  encroach  upon  the  portion  of  his  income  which 
is  devoted  to  his  own  support.  Indeed  the  common  argument  for 
the  seizing  of  large  incomes  is  that  it  will  involve  no  sacrifice  to  the 
owners.  This  is  true;  the  sacrifice  is  from  a  fund  destined  to  public 
use,  and  at  the  expense  of  society  as  a  whole  in  the  future. 

5.  THE  CRUX  OF  THE  PROBLEM  IS  LARGE 
PRODUCTION1 

The  truth  is  that  the  government  is  now  taking,  either  through 
loans  or  taxation,  practically  the  whole  of  the  savings  margin  of  the 
community,  and  that  the  only  way  of  increasing  the  amount  it  can 
get  is  through  increasing  either  the  total  product  of  industry  or  the 

1  Adapted  from  "Washington  Notes,"  Journal  of  Political  Economy,  XXVI 
(June,  1918),  666-67. 

ED.  NOTE. — This  reading  apparently  represents  the  view  of  the  Treasury 
officials  after  a  year's  experience  in  the  administration  of  war  finance. 


WAR  FINANCE  401 

amount  of  it  that  is  saved.  Some  increases  in  productiveness  may  be 
possible,  although  they  must  of  course  contend  with  the  steady  drain 
of  labor  into  the  fighting  forces.  Savings  can  undoubtedly  be  largely 
increased  and  must  be  if  greater  outlay  on  war  is  to  be  provided  for. 
The  raising  of  funds  through  any  other  means  would  imply  nothing 
more  than  inflation  of  credit  and  the  raising  of  prices,  processes 
neither  of  which  would  be  of  the  slightest  advantage  to  the  govern- 
ment and  would  be  of  immense  disadvantage  and  injury  to  the  public. 
The  problem  of  government  financing  is  thus  not,  as  was  erroneously 
supposed  by  a  large  number  of  economists  at  the  beginning  of  war,  a 
choice  between  loans  and  taxation  as  methods  of  getting  government 
revenue,  but  a  problem  of  encouraging  the  development  of  a  surplus 
of  wealth  that  can  be  made  available  by  either  means  for  government 
purposes.  There  is  grave  danger  that  in  the  new  taxation  plans  this 
point  might  be  lost  sight  of  and  a  mere  theoretical  preference  for  taxa- 
tion be  allowed  to  counterbalance  a  need  for  larger  income. 

At  the  opening  of  the  war  there  was  a  distinct  tendency  in  many 
quarters  to  regard  the  effect  of  loans  and  taxation  as  distinctly  dif- 
ferent from  one  another.  It  is  now  apparently  quite  generally 
admitted  that  this  is  a  distinction  without  a  difference,  and  that  the 
whole  question  between  loans  and  taxation  depends  upon  whether  the 
funds  furnished  in  either  case  are  likely  to  be  the  result  of  saving  or  of 
bank  borrowing.  Taxes  paid  by  a  contributor  from  the  proceeds  of 
loans  obtained  by  him  would  be  an  agency  in  "  inflation,"  whereas  a 
government  bond  sold  to  an  investor  who  purchased  it  from  funds 
saved  out  of  his  current  income  would  not  be.  This  modified  view 
of  the  case  largely  does  away  with  the  cruder  theories  expressed  early 
in  the  war  and  based  upon  the  view  that  taxation  practically  always 
tended  to  keep  down  prices,  while  loans  in  a  similar  way  tended  to 
advance  them.  Experience  is  showing  that  there  is  no  basis  for  any 
such  view,  and  the  prevailing  view  of  the  general  problem  is  being 
modified  accordingly,  as  just  indicated. 

6.    WAR  FINANCE  AND  WAR  PRODUCTION1 

The  argument  of  the  preceding  selection  that  the  great  problem 
of  war  finance  is  not  one  of  proportions  between  bonds  and  taxes, 
but  rather  one  of  encouraging  the  development  of  a  surplus  of  wealth 
that  can  be  made  available  for  government  uses  by  either  means  is 
somewhat  beside  the  point.  The  problem  is  not  one  of  increasing  the 

1  An  editorial. 


402  ECONOMICS  OF  WAR 

production  of  total  wealth  so  that  the  government  can  collect  abun- 
dance of  revenue;  the  problem  is  rather  to  increase  the  production  of 
the  right  forms  of  wealth  in  order  that  the  army  may  have  the  mate- 
rials for  fighting.  We  might  easily  derive  an  abundance  of  revenue 
from  the  production  of  luxuries  and  nonessentials  generally;  indeed 
the  lesson  of  the  past  year  indicates  that  we  could  thus  get  a  super- 
abundance of  revenue.  But  this  would  not  give  us  what  we  need. 
Exclusive  of  loans  to  our  Allies,  the  government  planned  to  spend 
during  the  fiscal  year  ending  June  30, 1918,  $12,316,000,000.  In  fact, 
the  government  had  spent  in  the  seven  months  from  June  30,  1917, 
to  January  31,  1918,  only  about  $3,150,000,000.  That  is,  in  seven- 
twelfths  of  the  year  the  government  had  been  able  to  spend  only 
three-twelfths  of  what  it  planned  to  spend.  With  coffers  filled  to 
overflowing  the  government  could  not  buy  the  supplies  needed,  for 
the  simple  reason  that  not  sufficient  energy  had  been  devoted  to  the 
production  of  war  supplies.  We  could,  moreover,  have  raised  much 
greater  sums  if  necessary. 

This  is  of  more  than  academic  interest.  During  the  periods  of 
Liberty  Loan  campaigns  the  investment  field  was  swept  clear  of 
funds  for  business  uses.  There  were  essential  lines  of  business  that 
were  hampered  by  a  lack  of  funds,  merely  because  the  government  had 
mortgaged  their  use  in  advance  of  its  requirements.  Large  excess 
revenue  in  the  hands  of  the  government,  moreover,  leads  to  public 
extravagance.  Many  attacks  have  been  made  against  the  govern- 
ment in  England  on  this  score  during  the  present  war.  It  is  well 
known  also  that  a  considerable  percentage  of  those  employed  in 
Washington  are  receiving  much  higher  compensation  than  they 
ever  received  in  civilian  occupations.  With  all  too  many  of  them  this 
enlarged  earning  power  results  in  extravagant  consumption.  The 
same  phenomenon  also  applies  to  "rich  war  laborers."  This  extrava- 
gance results  in  diverting  productive  power  to  nonessential  uses. 

The  Treasury  is  estimating  now  that  it  can  raise  $24,000,000,000 
for  the  year  1918-19,  because  this  figure  represents  the  total  of  the 
savings  of  the  American  people  and  American  corporations.  It 
represents,  however,  merely  monetary  savings;  and  there  is  no 
assurance  that  the  production  of  war  supplies  will  equal  $24,000,000,- 
ooo.  Until  we  understand  that  monetary  savings  are  not  tantamount 
to  production  of  war  supplies  we  will  make  no  rapid  progress  in  the 
science  of  war  finance.  It  is  quite  possible  that  this  coming  year  we 
shall  again  raise  more  funds  than  necessary,  with  resultant  hampering 


WAR  FINANCE  403 

of  essential  industry.  The  Treasury  Department  appears  to  be 
thinking  still  in  terms  of  money  rather  than  in  terms  of  industrial 
production.  The  transformation  of  monetary  savings  into  the  pro- 
duction of  war  supplies  requires  much  time,  for  it  necessitates  the 
readjustment  of  a  highly  complex  industrial  mechanism  from  peace 
production  to  war  production. 

There  is  of  course  the  consideration  to  be  reckoned  with  that 
heavy  taxation  and  bond  issues — heavier  than  is  immediately  neces- 
sary— result  in  more  quickly  forcing  a  retrenchment  in  consumption 
of  luxuries  and  thus  hasten  the  necessary  readjustment  of  industry. 
This  is  true,  however,  only  in  so  far  as  the  taxation  falls  on  consump- 
tion; it  is  not  true  when  it  falls  mainly  on  the  income  of  corporations. 
The  consideration  therefore  holds  for  the  kinds  of  taxation  but  not 
for  the  total  amount.  It  holds  for  the  placing  of  bonds  and  thrift 
stamps  among  the  rank  and  file  but  not  for  bond  subscriptions  of 
corporations.  It  holds  for  taxation  of  consumption  but  not  for  taxa- 
tion of  excess  profits  in  war  manufacture.  In  the  main  the  necessary 
readjustments  are  best  and  first  effected  by  more  direct  means,  by 
priorities  in  the  matter  of  raw  materials  and  transportation,  and  by 
plant  conversion  at  the  request  of  the  government.1  The  essential 
requirement  of  war  finance,  so  far  as  total  revenue  is  concerned,  is  to 
ascertain  the  amount  of  war  supplies  that  will  be  procurable  and  then 
adjust  the  income  to  the  outgo.  This  is  what  is  sometimes  known  as 
making  a  government  budget.  Our  financial  policy  unfortunately 
has  thus  far  had  regard  mainly  to  monetary  revenue;  it  should  be 
co-ordinated  with  the  production  of  war  supplies. 

XL VIII.    War  Finance  and  Currency  Inflation 
i.    THE  MEANING  OF  INFLATION2 

The  continued  high  prices  and  the  apparent  tendency  of  prices  to 
advance  to  still  higher  levels  have  brought  about  a  more  active  dis- 
cussion of  the  theory  of  prices  and  conditions  tending  to  raise  them 
than  has  existed  at  any  time  within  perhaps  twenty-five  years. 
Foremost  in  this  discussion  is  the  question  whether  "inflation"  is  or 
is  not  the  result  of  the  operation  of  the  Federal  Reserve  System,  and 
if  so  in  precisely  what  way.  Much  of  the  current  discussion  has 
apparently  been  based  upon  vague  or  indefinite  ideas  of  the  meaning 

1  See  selections  XXVII,  6  and  7. 

2  Adapted  from  "Washington  Notes,"  Journal  of  Political  Economy,  XXVI 
(June,  1918),  667. 


404  ECONOMICS  OF  WAR 

of  "inflation,"  but  there  is  now  considerable  evidence  that  a  more 
general  consensus  of  opinion  and  agreement  as  to  definitions  is  in  sight. 
"Inflation,"  in  the  sense  in  which  the  term  is  now  being  used  by 
the  more  careful  writers  on  the  subject,  is  taken  to  signify  the  increase 
of  bank  credits  not  represented  by  any  immediate  addition  to  current 
wealth.  Thus,  for  example,  if  the  government  borrows  by  an  issue  of 
bonds,  such  bonds  being  taken  by  the  banks  and  payment  for  them 
made  in  the  form  of  bank  credit  which  is  at  once  transferred  to 
individuals  who  have  furnished  labor  or  supplies,  it  is  evident  that 
there  has  been  a  net  addition  to  the  purchasing  power  of  the  com- 
munity not  represented  by  any  corresponding  addition  to  wealth, 
whether,  of  a  salable  or  available  form  or  otherwise.  Here  there  is  an 
"inflation,"  or  exaggeration  of,  or  addition  to,  the  actual  purchasing 
power  of  the  community  as  compared  or  contrasted  with  the  amount 
of  goods  in  existence.  From  this  point  of  view  the  measure  of 
"inflation"  is  afforded  by  the  total  new  holdings  of  bonds  in  banks 
which  have  become  the  basis  for  credits  on  the  books  of  such  banks, 
used  or  applied  to  the  purchase  of  goods  and  services.  Particularly 
is  this  true  in  those  cases  where  the  purchasing  power  so  used  takes  a 
form  which  is  available  as  "reserve"  against  other  credits  to  be 
granted  by  the  banks.  Thus,  for  example,  if  the  banks  which  pur- 
chased bonds  in  the  illustration  already  given  at  once  rediscount  their 
own  notes  secured  or  protected  by  these  bonds,  at  Federal  Reserve 
banks,  they  thereby  obtain  a  credit  on  the  books  of  Federal  Reserve 
banks  which  will  sustain,  theoretically  at  least,  several  times  its  own 
amount  in  the  form  of  credits  on  the  books  of  the  banks  which  have 
been  granted  the  rediscount.  This  means  that  the  credit  so  granted 
may  serve  several  times  as  a  medium  of  purchasing  power  employed  in 
gaining  control  of  goods  and  services.  In  so  far  as  paper  secured  by 
government  bonds  has  been  discounted  on  a  semi-permanent  or 
renewal  basis,  the  Federal  Reserve  System  may  thus  be  regarded  as 
serving  as  a  means  of  "inflation." 

2.     INFLATION  THROUGH  BORROWING  ON  BONDS1 

The  essential  difference  between  raising  money  from  the  public 
by  taxation  and  raising  it  by  the  issuance  of  bonds  is  the  resulting 
inflation.  Inflation  is  a  word  that  is  much  used  but  not  always 

1  By  F.  A.  Delano.  Adapted  from  "Fundamental  Principles  of  Financing  the 
War,"  Economic  World  (June  22,  1918),  p.  883. 

ED.  NOTE. — Mr.  Delano  is  a  member  of  the  Federal  Reserve  Board. 


WAR  FINANCE  405 


» 


understood.  In  its  simpler  and  most  readily  comprehended  meaning 
it  is  that  form  of  inflation  of  the  currency  which  was  common  in  our 
Civil  War,  when  the  government,  instead  of  printing  its  promises  to 
pay  in  the  form  of  investment  bonds,  printed  them  in  the  form  of 
currency  notes.  Under  that  method  of  inflation  a  government  wishing 
to  buy  a  million  dollars'  worth  of  produce,  or  to  pay  a  million  dollars 
in  wages,  would  simply  print  a  million  dollars  of  its  own  "promises 
to  pay,"  and  these  promises  to  pay  in  the  form  of  currency  would  there- 
after pass  from  hand  to  hand  as  money.  The  extent  to  which  this 
sort  of  inflation  may  go  without  wrecking  the  financial  structure  of  a 
nation  depends  entirely  upon  the  wealth  of  the  nation  and  the  con- 
fidence which  the  public  or  other  nations  have  in  its  ability  to  keep  its 
promises.  The  usual  symptoms  of  such  methods  of  inflation  are  the 
disappearance  of  metallic  money  and  the  general  advance  in  the 
prices  of  commodities.  In  this  terrific  war  most  of  the  European 
nations  have  resorted  to  this  or  similar  methods  of  inflation;  and 
because  the  operations  of  various  governments  have  been  united 
through  banking  transactions  and  by  reason  of  interdependence  and 
close  international  relationship,  even  those  nations  entirely  uncon- 
nected with  the  war  have  felt  the  effects  of  inflation.  As  a  result 
there  has  been  in  effect  in  the  last  three  and  one-half  years  a  world- 
inflation  the  like  of  which  has  never  before  occurred. 

To  illustrate :  Prior  to  our  entry  into  the  war,  when  the  European 
nations  were  buying  heavily  in  the  United  States,  they  paid  largely 
in  gold  for  what  they  bought,  and  as  a  result  about  a  billion  dollars 
in  gold  coin  came  to  this  country  in  the  period  of  two  and  one-half 
years.  The  reason  the  European  nations  were  able  to  send  us  their 
gold  was  that  they  printed  paper  money  for  their  own  use,  releasing 
gold  for  us.  But  that  gold  inflation  in  this  country  is  one  explanation 
of  the  general  advance  in  prices  of  all  commodities,  although  undoubt- 
edly it  is  not  the  only  explanation ;  for  it  must  be  freely  admitted  that 
prices  have  been  affected,  first,  by  scarcity,  occasioned  by  increased 
demand  from  Europe,  for  many  articles  produced  by  us;  second,  by 
reason  of  the  fact  that  increases  in  taxes  and  wages  of  labor  have 
entered  into  the  cost  of  production  and  sale  of  all  articles  and  account 
for  a  share  of  the  increased  prices  of  commodities. 

It  is  doubtful  if  we  in  our  country  could  have  avoided  inflation,  no 
matter  how  hard  we  had  stuck  to  the  plan  of  higher  taxation  or  the 
"pay-as-you-go"  policy,  but  we  may  as  well  frankly  admit  that 
while  our  financial  policy  has  been  conservative  the  great  increase  in 


406  ECONOMICS  OF  WAR 

our  currency  issues  has  contributed  to  the  general  inflation.  True, 
we  have  not  issued  currency  or  government  promises  to  pay  in  the 
form  of  circulating  notes,  but  we  have  issued  bonds  and  we  have 
permitted — and  indeed  could  not  have  forbidden — the  use  of  these 
bonds  as  collateral  for  bank  credit.  Thus,  while  the  government  has 
not  paid  for  "goods  and  services"  with  its  own  circulating  notes,  it 
has  issued  its  promises  to  pay  in  the  form  of  bonds  and  it  has  permitted 
these  bonds  to  be  hypothecated  for  currency;  and  thus,  through'  our 
banking  system,  it  has  created  a  machinery  under  which  the  owner 
of  government  bonds  might  secure  bank  credit  with  which  he  might 
pay  by  check  or  in  currency  for  what  he  bought.  We  have  thus  far 
in  this  country  been  able  to  hold  down  the  issuance  of  currency  by 
maintaining  a  high  gold  reserve  against  it,  and  there  is  no  national 
currency  that  is  on  a  stronger  basis;  but  to  deny  that  the  issuance  of 
government  bonds  to  raise  funds  to  pay  for  goods  and  services 
results  in  inflation  would  exhibit  an  unwillingness  to  look  the  facts 
in  the  face. 

While  the  effects  of  inflation  are  manifestly  bad,  it  would  be  unfair 
not  to  admit  that  inflation  has  some  good  effects.  In  so  far  as  it 
increases  the  prices  of  commodities  generally,  it  results  in  compulsory 
economies  (except  where  wages  or  money  incomes  increase  in  like 
proportion)  and  in  this  sense  operates  as  a  sort  of  tax  on  consumption. 
Hence,  if  it  be  true,  as  we  have  contended,  that  economy  is  necessary 
in  war  times,  it  might  be  urged  that  a  heavy  consumption  tax  was  a 
most  desirable  method  of  bringing  about  enforced  economies.  A  just 
answer  to  that  suggestion  seems  to  be  that  such  a  form  of  consumption 
tax  falls  with  great  severity  upon  citizens  in  general  because  it  adds 
to  the  cost  of  the  necessities  of  life;  upon  the  wage-earner  it  falls 
heavily  unless  and  until  he  is  able  to  get  his  wages  advanced  in  pro- 
portion to  the  amount  of  the  inflation ;  and  upon  those  dependent  on 
moderate  fixed  incomes  or  fixed  salaries  it  is  an  unduly  heavy  burden. 
It  affects,  of  course,  all  corporations  or  individuals  engaged  in  manu- 
facturing and  other  industrial  enterprises,  but  it  may  in  many  cases 
be  passed  on  by  them  to  the  consumer  in  the  shape  of  increased  prices. 
For  those  corporations  which,  by  reason  of  contract  or  law,  are 
required  to  accept  a  fixed  compensation,  it  is  very  burdensome. 
Perhaps  the  most  serious  indictment  against  the  results  of  inflation 
is  the  fact  that  it  dislocates  all  the  delicate  inter-relations  between 
wages,  compensation,  payment  for  services,  prices  of  commodities, 
etc.;  and,  although  brought  about  by  the  operations  of  the  govern- 


WAR  FINANCE  407 

ment  itself,  its  effect  is  to  raise  prices  against  the  government,  thereby 
increasing  the  necessity  for  still  further  taxation  or  borrowing.  In 
other  words,  it  establishes  what  may  be  termed  a  vicious  cycle,  in 
that  it  first  raises  prices  and  by  so  doing  creates  the  necessity  of 
raising  more  money,  and  so  still  further  raises  prices  again. 

Our  conclusions  must  therefore  be: 

First,  that  the  government  needs  rigid  economy  of  all  its  citizens 
to  win  the  war;  that  it  requires  it,  not  only  because  it  needs  money  to 
command  and  pay  for  goods  and  services,  but  because  every  self-denial 
will  release  some  good  or  some  service  which  the  government  can  use 
to  good  advantage.  Second,  it  is  clear,  not  only  that  taxation  is  the 
best  way  for  citizens  to  support  their  government,  but  that  taxes 
intelligently  applied  will  do  much  to  produce  the  very  savings  of  which 
we  have  been  speaking.  Lastly,  taxation  and  the  resultant  savings 
are  the  only  means  to  mitigate  the  perils  and  pitfalls  of  inflation. 

3.    THE  EVILS  OF  INFLATION1 

The  danger  of  the  loan  policy  is  that,  by  deluding  itself  with  a 
notion  that  it  is  putting  the  burden  onto  the  future,  it  will,  through 
resort  to  fatuous  and  easy  expedients,  put  the  burden  both  on  the 
present  and  on  the  future.  This  will  happen  if  the  loan  policy,  failing 
to  induce  a  commensurate  increase  in  the  savings  fund  of  the  nation, 
degenerates,  through  the  abuse  of  banking  credit,  into  inflation — 
raising  prices  against  the  great  body  of  consumers  as  well  as  against 
the  government,  thus  needlessly  augmenting  the  public  debt  and 
increasing  the  cost  of  living  just  as  taxes  would.  The  policy  of 
financing  war  by  loans,  therefore,  will  be  but  a  fragile  and  deceptive 
and  costly  support  unless  every  dollar  obtained  by  the  government  is 
matched  by  a  dollar  of  spending  power  relinquished  by  the  community 
— in  other  words,  will  fail  and  develop  into  inflation  unless  the  dollars 
which  are  subscribed  to  the  bonds  of  the  government  are  real  dollars, 
the  result  of  real  savings  and  of  real  retrenchment.  The  danger 
to  be  feared  in  undertaking  to  finance  our  war  by  credit  is  that 
sophistry  and  financial  legerdemain  may  lead  us  to  attempt  to  carry 
the  operation  through  as  an  operation  in  banking  finance  instead  of 
as  an  operation  in  saving  and  investment.  The  doctrine  is  already 
current  in  the  country,  with  the  sanction  of  some  leading  bankers, 

1  By  A.  C.  Miller.  Adapted  from  "War  Finance  and  the  Federal  Reserve 
Banks,"  in  Financial  Mobilization  for  War,  pp.  145-49. 


408  ECONOMICS  OF  WAR 

that  our  war  cannot  be  financed  except  by  credit  expansion  running 
to  the  limits  of  inflation.  Being  dealers  in  banking  credit,  they 
naturally  take  the  view  that  the  expansion  of  credit  in  question  will 
properly  have  to  be  an  inflation  of  banking  credit;  for  this  is  the  new 
and  most  recent  form  of  inflation  which  the  gigantic  war  in  Europe 
has  been  bringing  to  the  front  as  a  device  in  war  finance. 

Inflation  as  an  expedient  of  public  finance  has  long  been  practiced, 
although  it  has  never  had  the  sanction  and  approval  of  those  whose 
business  it  has  been  to  lay  down  canons  of  finance  rather  than  to 
engage  in  the  practice  of  finance.  The  record  of  our  own  great  wars 
and  the  records  of  the  great  wars  of  other  nations  in  modern  times 
show  pretty  uniformly  that  timidity  in  facing  the  serious  realities  of 
war  finance  has  usually  developed  a  situation  from  which  escape  was 
finally  sought  through  the  desperate  and  costly  expedient  of  govern- 
ment currency  inflation.  Such  was  our  disastrous  experience  in  the 
Civil  War,  when  resort  was  had  to  the  greenback  currency,  which 
was  nothing  but  a  device  of  inflationism,  and  some  $500,000,000  was 
thereby  added  to  the  cost  of  the  war — which  might  have  been  avoided 
had  the  government's  financial  operation  been  maintained  on  a  strong 
and  healthy  basis — to  say  nothing  of  the  demoralization  wrought  in 
business  and  the  hardships  and  iniquities  inflicted  upon  the  great  body 
of  defenseless  workingmen  and  consumers.  Clear  and  specific  as 
the  teachings  of  that  experience  are  to  those  who  can  learn  from 
history,  it  will  remain  for  this  war  to  demonstrate  whether  or  not  the 
lesson  has  been  fully  taken  to  heart.  Inflation  still  has  seductive 
potentialities  for  the  pundits  of  paper  finance.  Even  if  we  do  not 
avowedly  repeat  the  costly  mistakes  of  our  Civil  War  by  ventures  in 
the  field  of  government  currency  inflation,  we  may  yet  reach  a  similar 
result  and  land  the  community  in  a  similar  plight  through  the  more 
subtle  and  less  vulgar  process  of  banking  inflation. 

The  same  process,  only  in  a  vastly  intensified  degree,  has  been 
going  on  in  the  belligerent  countries  of  Europe  and  has  given  rise 
repeatedly  to  the  gravest  expressions  of  solicitude  by  those  who  are 
engaged  in  looking  through  the  tissues  of  paper  finance  to  the  inexor- 
able economic  facts.  All  of  the  belligerent  countries  of  Europe,  in 
one  degree  or  another,  have  undertaken  to  finance  the  war  by  bank 
borrowing,  with  inflation  results  that,  for  the  most  of  them,  make  a 
tragic  record  of  hardship  for  the  masses  and  needless  augmentations  of 
the  nations'  debts,  and  will  leave  behind,  at  the  close  of  the  war  and 
for  the  next  generation,  a  heritage  of  unspeakable  financial  confusion. 


WAR  FINANCE  409 

For  let  it  not  for  a  moment  be  overlooked  that  inflation,  in  its 
effects,  amounts  to  conscriptive  taxation  of  the  masses.  It  is,  indeed, 
one  of  the  worst  and  the  most  unequal  forms  of  taxation,  because  it 
taxes  men,  not  upon  what  they  have  or  earn,  but  upon  what  they  need 
or  consume.  The  only  difference  for  the  masses  between  this  kind 
of  disguised  and  concealed  taxation  and  taxes  which  are  levied  and 
collected  openly  is  that  in  the  case  of  the  latter  the  government  gets 
the  revenue,  while  in  the  former  case  it  borrows  it,  and  those  to  whom 
it  is  eventually  repaid  are  not  those,  for  the  most  part,  who  have  been 
mulcted  for  it.  Inflation  therefore  produces  a  situation  akin  to  double 
taxation  in  that  the  great  mass  of  the  consuming  public  is  hard  hit 
by  the  rise  of  prices  induced  by  the  degenerated  borrowing  policy  and 
later  has  to  be  taxed  in  order  to  produce  the  revenue  requisite  to 
sustain  the  interest  charge  on  the  debt  contracted  and  to  repay  the 
principal.  The  active  business  and  speculative  classes  can  usually 
take  care  of  themselves  in  the  midst  of  the  confusion  produced  by 
inflation  and  recoup  themselves  for  their  increasing  outlays.  Indeed 
inflation  frequently  makes  for  an  artificial  condition  of  business 
prosperity.  That  is  why  war  times  are  frequently  spoken  of  in  terms 
of  enthusiasm  by  the  class  of  business  adventurers.  But  it  is  a  pros- 
perity that  is  dear-bought  and  at  the  expense  of  the  great  body  of 
plain-living  people.  It  would  be  a  monstrous  wrong  if  in  financing  our 
present  war  we  should  pursue  methods  that  would  land  us  in  a  sea 
of  inflation  in  which  the  great  body  of  the  American  people,  who  are 
called  upon  to  contribute  the  blood  of  their  sons  to  the  war,  were 
made  the  victims  of  a  careless  or  iniquitous  financial  policy. 

XLIX.     Taxation  Policy 
i.    THE  FIRST  YEAR  OF  WAR  TAXATION1 

I.      THE   INCOME   TAX 

The  change  in  rates  imposed  by  the  War  Revenue  Act  of  October  3, 
1917,  as  compared  with  the  act  of  September  8,  1916,  is  of  a  threefold 
character:  an  increase  of  the  normal  tax,  a  lowering  of  the  exemption, 
and  a  rise  in  the  scale  of  progression.  A  supplementary  normal  tax 

1  By  Edwin  R.  A.  Seligman.  Adapted  from  "The  War  Revenue  Act," 
Political  Science  Quarterly,  XXXIII  (March,  1918) ,  1 7  ff.  Copyright  by  the  editors 
of  the  Political  Science  Quarterly,  1918. 

ED.  NOTE. — Mr.  Seligman  is  professor  of  political  economy  at  Columbia 
University. 


410  ECONOMICS  OF  WAR 

of  2  per  cent  is  imposed,  bringing  the  total  to  4  per  cent.  The  law 
furthermore  provides  for  a  reform  that  had  been  widely  urged  by 
those  who  considered  the  exemption  of  $3,ooo-$4,ooo  entirely  too 
high.  Accordingly,  in  the  case  of  the  supplementary  normal  tax  the 
exemption  is  reduced  to  $1,000  for  unmarried  and  $2,000  for  married 
persons.  The  law  also  provides  for  an  additional  exemption  of  $200 
for  each  child  under  eighteen  years  of  age  or  incapable  of  self-support 
because  of  mental  or  physical  defect. 

In  order  to  counterbalance  this  reduction,  which  will  bring  into 
the  toils  of  the  law  millions  of  new  taxpayers,  the  rates  on  the  higher 
incomes  are  sharply  increased.  The  original  law,  it  will  be  remem- 
bered, had  provided  for  a  so-called  additional  tax  (popularly  called  the 
surtax,  or  sometimes  the  supertax)  on  all  incomes  over  $20,000, 
ranging  from  i  to  8  per  cent  on  the  highest  amounts.  The  law  of 
1916,  as  we  have  noted,  increased  the  graduated  scale  so  as  to  run 
from  i  to  13  per  cent.  The  new  law  reduces  to  $5,000  the  amount  at 
which  graduation  begins  and  provides  an  entirely  different  scale, 
ranging  from  i  to  50  per  cent,  for  the  supplementary  additional  tax. 
The  result  is  that  the  maximum  rate  is  now  67  per  cent,  that  is,  2 
per  cent  supplementary  normal  tax,  13  per  cent  old  additional  tax, 
and  50  per  cent  new  additional  tax. 

This  is  the  highwater  mark  thus  far  reached  in  the  history  of 
taxation.  Never  before  in  the  annals  of  civilization  has  an  attempt 
been  made  to  take  as  much  as  two-thirds  of  a  man's  income  by  taxa- 
tion. In  comparing  our  present  income  tax  with  the  British,  more- 
over, it  is  to  be  noted  that  our  rates  are  much  higher  on  the  larger 
incomes  and  much  smaller  on  the  lower  and  moderate  incomes.  The 
American  scale  is  an  eloquent  testimony  to  the  fact,  not  only  that 
large  fortunes  are  far  more  numerous  here  than  abroad,  but  also  that 
there  is  greater  appreciation  of  the  democratic  principles  of  fiscal 
justice.  For  the  overwhelming  trend  of  modern  opinion  is  clearly  in 
the  direction  of  applying  to  excessive  fortunes  the  principle  of  faculty 
or  ability  to  pay.  It  still  remains  to  be  seen,  however,  whether  the 
new  law,  with  its  exceedingly  high  rates,  will  turn  out  to  be  as  work- 
able administratively  and  as  productive  fiscally  as  a  somewhat  lower 
scale  would  have  been. 

The  second  change  in  the  law  is  the  virtual  abandonment  of  the 
stoppage-at- source  method  of  collection.  It  will  be  remembered  that 
the  two  leading  types  of  income  tax  that  had  developed  during  the  last 
generation  were  the  so-called  lump-sum  method  of  Prussia  and  the 


WAR  FINANCE  411 

scheduled  method  of  Great  Britain.  The  Prussian  system,  which 
rested  finally  upon  accurate  official  assessment,  depended  for  its 
success  upon  an  incorruptible  civil  service  and  the  fear  instilled  into 
the  average  taxpayer  of  making  false  returns.  Great  Britain  had 
long  since  abandoned  the  scheme  and  had  substituted  the  plan  of 
imposing  the  responsibility  of  the  tax  upon  the  person  who  paid  the 
income  rather  than  upon  the  recipient.  As  between  the  unchecked 
lump-sum  and  the  stoppage-at-source  method  it  is  clear  that  under 
American  conditions  the  latter  was  preferable.  At  the  close,  however, 
of  the  discussion  in  1913,  an  alternative  plan  was  suggested,  to  which 
the  present  writer  gave  the  name  of  information-at-source,  designed 
to  achieve  the  substantial  purposes  of  the  collection-at-source  method 
without  its  discomforts  and  complications.  This  alteration  has  now 
been  finally  adopted  in  essence.  The  law  makes  the  tax  collectible 
from  the  recipient  of  the  income,  but  imposes  upon  the  payers  of 
income  the  obligation  to  give  full  information  of  the  amount  and 
conditions  of  payment.  Information  is  required  from  corporations 
as  to  dividend  payments,  from  brokers  as  to  details  of  transactions, 
and,  in  general,  from  all  persons  making  payment  to  any  other  person 
of  any  "fixed  or  determinable  gains,  profits,  and  income  over  $800." 
Only  two  exceptions  are  permitted.  Withholding  at  the  source  is 
retained  for  the  original  normal  tax  in  the  case  of  income  accruing 
to  non-resident  aliens  and  of  interest  on  tax-free  bonds.  The  latter 
exception  was  inserted  as  a  concession  to  bondholders  who,  relying 
upon  the  promise  of  the  corporations  to  assume  the  tax,  had  paid  so 
much  more  for  the  bonds.  It  is  to  be  regretted,  however,  that  the 
law  fails  to  include  the  provision,  found  in  the  British  statute,  which 
prohibits  for  the  future  the  inclusion  of  such  tax-free  covenants  in 
corporate  bonds. 

On  the  fundamental  question  of  what  constitutes  income  the  new 
law  does  not  take  any  fresh  stand.  This  still  remains  a  difficulty, 
which,  however,  not  only  is  shared  by  many  other  income-tax  laws, 
but  is  traceable  to  an  inadequate  analysis.  The  distinction  between 
capital  and  income  has  received  far  less  scientific  attention  than  it 
deserves.  It  may  be  said  that  there  are  at  least  three  different  con- 
ceptions of  income  found  in  economic  literature:  the  one  emphasizes 
the  idea  of  regularity  or  recurrence;  the  second  accentuates  the  idea 
of  product  or  return  from  an  enduring  source;  the  third,  or  net-profit 
theory,  lays  stress  on  the  surplus  of  what  comes  in  over  what  goes 
out.  It  is  impossible  here  to  discuss  the  widely  divergent  practical 


412  ECONOMICS  OF  WAR 

consequences  of  these  theories.  It  may  be  said,  however,  that  until 
economists  have  decided  which  of  the  three  is  correct,  the  interpre- 
tation of  the  law  is  bound  to  create  endless  trouble.  Some  of  the 
chief  difficulties  of  the  interpretation  are  still  associated  with  the 
question  of  stock  dividends  and  depreciation  in  the  market  value  of 
securities. 

Up  to  this  point  we  have  discussed  the  individual  income  tax. 
The  law,  however,  provides,  as  before,  also  for  a  corporate  income 
tax.  In  addition  to  the  existing  normal  tax  of  2  per  cent,  a  supple- 
mentary tax  of  4  per  cent  is  imposed  upon  the  income  of  every  cor- 
poration, joint-stock  company  or  association,  or  insurance  company, 
but  not  including  partnerships.  The  result  is  that  corporations  will 
hereafter  pay  a  tax  of  6  per  cent  on  their  income.  In  computing  the 
tax,  however,  all  dividends  received  by  one  corporation  from  another 
taxable  corporation  are  deductible — an  important  concession  to 
holding  companies  but  a  concession  limited  to  the  supplementary 
tax.  The  limitations  on  the  deduction  for  interest  and  taxes  referred 
to  above  in  the  case  of  individuals  are  applicable  also  to  corporations, 
as  is  the  provision  permitting  the  crediting  to  income  of  the  excess 
profits  levied  in  the  same  year. 

Corporations,  however,  are  subject  to  a  further  tax  of  10  per  cent 
on  the  amount  of  profits  remaining  undistributed  six  months  after 
the  end  of  the  year.  Income  actually  invested  in  business  or  in 
federal  bonds  is  exempted  from  this  additional  tax;  but  if  it  transpires 
that  profits  retained  for  employment  in  the  business  are  not  so 
employed  or  are  not  reasonably  required  therein,  they  shall  be 
subject  to  a  tax  of  15  per  cent.  It  may  be  conjectured  that  these 
provisions  will  lead  to  a  speedy  distribution  of  all  corporate  profits 
that  should  properly  go  to  the  stockholders. 

In  any  fair  estimate  of  the  present  law  five  defects  may  be  noted, 
some  of  them  survivals,  some  of  them  additions. 

The  first  weakness  is  the  failure  to  introduce  differentiation 
between  earned  and  unearned  income.  An  attempt  was  made  to 
persuade  Congress  to  adopt  this  distinction,  which,  as  is  well  known, 
was  initiated  in  Great  Britain  almost  a  decade  ago.  The  reason 
advanced  for  the  refusal — the  fear  of  further  complicating  the  tax — 
is  far  from  convincing.  Simplicity  gained  at  the  expense  of  equity 
is  not  to  be  admired.  The  situation  is  in  fact  aggravated  by  the 
extension  of  the  excess-profits  tax  to  professional  incomes,  as  a  result 
of  which  earned  incomes,  instead  of  being  taxed  less,  will  actually  be 


WAR  FINANCE  413 

taxed  more  than  unearned  incomes.  This  is  of  course  a  travesty  of 
justice. 

The  second  defect  is  that  returns,  instead  of  being  demanded  from 
everyone,  are  required  only  from  the  non-exempt  classes,  that  is,  from 
those  whose  income  exceeds  $i,ooo-$2,ooo  or  $3,000-^4,000  respec- 
tively. This,  coupled  with  the  failure  to  compel  a  return  of  income 
from  government  tax-free  bonds,  will  prevent  the  collection  of  valu- 
able information  as  to  the  total  social  income  and  its  distribution. 
A  return,  including  the  entire  income,  should  be  required,  as  is  almost 
uniformly  the  case  elsewhere,  from  every  citizen. 

Third,  the  provision  as  to  the  calculation  of  looses  and  gains  is 
still  inequitable.  On  any  one  of  the  three  different  theories  of 
income  referred  to  above,  our  present  practice  of  counting  certain 
gains  as  income  and  of  refusing  to  allow  for  corresponding  losses  is 
not  only  indefensible,  but  sure  to  create  gross  inequalities. 

In  the  fourth  place,  the  treatment  accorded  to  dividends  is  highly 
questionable.  Dividends  must  indeed  be  reported  by  individuals  and, 
although  not  subject  to  the  ordinary  normal  tax,  are  liable  to  both  the 
supplementary  normal  tax  and  the  additional  taxes.  A  new  section, 
however,  provides  that  dividends  are  taxable  at  the  rates  prescribed 
for  the  years  in  which  the  corporate  profits  are  accumulated.  This 
is  unjust  because  the  dividends  ought  to  be  considered  income  when 
received,  irrespective  of  when  the  profits  were  earned.  If  the  war 
should  last  several  years  and  be  attended  by  an  increase  of  war  taxes, 
it  is  likely  that  many  wealthy  stockholders  will  escape  by  the  fact  of 
the  corporate  profits  having  been  originally  earned  in  the  period 
before  the  high  taxes  were  imposed.  Moreover  the  law  will  probably 
be  so  complicated  as  not  to  be  easy  of  enforcement.  For  the  rate  of 
the  tax  will  depend  upon  the  amount  of  total  income  in  any  one  year, 
and  the  identical  amount  of  dividend  may  form  an  entirely  different 
proportion  of  that  income  from  year  to  year.  It  will  be  increasingly 
difficult,  therefore,  to  administer  the  provision.  In  the  meantime 
great  confusion  will  ensue. 

The  final  defect  is  that  no  machinery  has  yet  been  devised  to 
check  the  returns  from  individuals  engaged  in  business  or  occupations. 
In  the  case  of  large  corporations  and  partnerships,  as  well  as  individual 
incomes  from  securities,  the  system  of  information-at-source,  together 
with  the  observance  of  modern  accounting  rules,  will  in  all  probability 
ensure  fair  accuracy  in  the  returns.  But  where  neither  of  these  safe- 
guards is  applicable,  a  large  loophole  is  left  open.  Where  the  rates 


414  ECONOMICS  OF  WAR 

of  taxation  are  as  high  as  at  present,  the  dangers  of  evasion  are 
multiplied;  and  evasion  means  not  only  loss  of  revenue  but  inequality. 
Much  has  been  done  elsewhere  to  institute  checks  designed  to  di- 
minish this  danger.  While  some  of  the  statements  advanced  in  and 
out  of  Congress  as  to  the  widespread  evasions  in  the  present  law  are 
clearly  exaggerated,  there  is  still  room  for  decided  improvement  in 
administration. 

II.      THE   EXCESS-PROFITS   TAX 

Although  the  income  tax,  both  old  and  new,  is  designed  to  provide 
about  the  same  revenue  as  the  excess-profits  tax,  the  latter  is  the  novel 
part  of  the  law.  What  is  its  significance  ? 

The  first  point  to  be  emphasized  is  that  it  is  a  business  tax.  The 
criteria  that  may  be  employed  in  classifying  taxes  are  manifold.  For 
the  purpose,  however,  of  explaining  this  new  impost  it  will  suffice  to 
observe  that  taxes  on  wealth  are  susceptible  of  a  threefold  division. 
The  tax  may  be  on  either  property  or  income,  on  either  individuals  or 
corporations,  on  either  persons  or  things.  It  is  this  last  distinction 
which  is  of  consequence  here — the  distinction  which  the  lawyers  make 
between  taxes  in  personam  and  in  rem.  Among  the  "things"  on 
which  taxes  may  be  imposed  are  land,  capital,  and  business.  The 
excess-profits  tax  is  one  on  tlie  business,  irrespective  of  the  person  who 
conducts  it.  It  is  like  the  real  estate  tax  in  New  York,  assessed  on  the 
land  without  regard  to  the  owner.  The  objection,  therefore,  is  not 
valid  that  because  the  tax  is  imposed  on  profits  it  constitutes  double 
taxation  in  superimposing  one  income  tax  upon  another.  This  is  the 
same  confusion  of  thought  which  has  led  some  writers  to  object  to  the 
inclusion  of  a  corporate  income  tax  in  a  law  which  endeavors  to  reach 
the  entire  income  of  the  individual.  The  corporate  income  tax,  like 
the  excess-profits  tax,  is  a  tax  on  the  business,  not  a  tax  on  the  individ- 
ual; a  tax  on  a  thing,  not  on  a  person. 

In  the  second  place,  the  excess-profits  tax  is  not  a  war-profits  tax, 
if  by  this  term  we  mean  a  tax  imposed  upon  the  additional  profits 
resulting  from  the  war.  This  constitutes  its  chief  difference  from  the 
war-profits  taxes  levied  in  other  countries. 

The  almost  simultaneous  institution  of  the  war-profits  taxes 
abroad  is  easy  of  comprehension.  Never  before  in  the  history  of  the 
world  have  such  gigantic  sums  been  expended  by  belligerents  or  have 
such  colossal  gains  been  made  by  private  individuals  in  belligerent 
and  neutral  countries  alike.  It  was  a  natural  feeling  that  no  private 


WAR  FINANCE  415 

enterprise  should  be  permitted  to  make  inordinate  gains  out  of  the 
misery  of  humanity,  and  that  the  community  should  be  entitled  to  a 
great  part  of  the  profits  for  which  no  individual  enterprise  is  really 
responsible.  The  consequence  was  that  the  government  everywhere 
put  in  a  claim  to  a  large  share  of  these  profits  due  to  the  war.  The 
proportion  has  risen  in  some  countries  to  80  or  90  per  cent,  and  the 
war  profits  have  in  general  been  defined  as  the  excess  of  profits  during 
the  war  over  those  during  a  pre-war  period. 

The  reason  which  induced  Congress  to  modify  this  principle  was 
that  not  a  few  of  our  largest  business  enterprises  had  been  making 
immense  profits  in  the  pre-war  period,  and  that,  inasmuch  as  their 
profits,  both  past  and  present,  were  scarcely  being  touched  by  the 
corporate  income  tax,  these  enterprises  would  virtually  be  exempt, 
while  their  more  unfortunate  competitors,  who  had  done  relatively 
poorly  during  the  pre-war  period,  would  be  heavily  burdened.  The 
decision  was  therefore  reached  to  levy  the  tax,  not  on  war  profits  as 
such,  but  on  excess  profits  in  general.  Although  the  tax  is  called  the 
"war  excess-profits  tax,"  the  term  really  means  the  tax  on  excess 
profits  levied  during  the  war,  just  as  the  terms  "war  excise  taxes"  or 
"war  income  tax"  mean  the  respective  taxes  levied  during  the  war. 

The  significant  fact,  however,  is  that  nothing  is  said  about  the 
limitation  of  the  tax  to  the  period  of  the  war.  In  the  war-profits 
taxes  abroad  the  taxes  cease  automatically  with  the  end  of  the  war, 
for  where  there  is  no  war  there  can  be  no  war  profits.  It  is  entirely 
possible,  however,  for  our  tax  to  continue  after  the  war,  just  as  it  is 
possible  that  fiscal  exigencies  may  compel  the  continuance,  in  whole 
or  in  part,  of  our  war  income  tax  or  of  our  war  excises.  It  will  be  seen, 
therefore,  that  we  have  here,  ready  to  hand,  a  potential  source  of  the 
future  income  which  will  be  so  sorely  needed  hereafter,  and  for  which 
European  statesmen  and  publicists  have  been  dimly  groping. 

When,  however,  we  come  to  consider  the  precise  way  in  which 
this  new  business  tax  has  been  worked  out,  we  find  that  it  is  open  to 
serious  criticism.  In  all  the  European  laws  the  taxes  are  not  on  war 
excess  profits  but  on  excess  war  profits;  that  is,  on  the  excess  of  war 
profits  over  peace  profits.  Since,  however,  our  plan  is  to  tax  excessive 
profits  in  general  rather  than  the  excess  over  a  pre-war  standard,  the 
criterion  had  to  be  lodged  elsewhere  than  in  pre-war  profits.  Unfortu- 
nately the  criterion  of  normal  profits  is  declared  to  be  a  certain  per- 
centage of  the  capital  employed,  the  pre-war  period  being  utilized 
only  incidentally  in  ascertaining  this  normal  percentage.  That  is  to 


416  ECONOMICS  OF  WAR 

say,  in  computing  excess  profits  the  law  takes  the  excess  over  a  so- 
called  deduction  or  normal  amount,  consisting  of  a  fixed  sum  ($3,000 
for  domestic  corporations,  or  $6,000  for  partnerships,  citizens  or 
residents),  together  with  an  amount  equal  to  the  percentage  of  the 
invested  capital  represented  by  the  average  annual  income  during  the 
pre-war  period,  provided  that  this  percentage  shall  in  no  case  be  less 
than  7  nor  more  than  9  per  cent  of  the  capital.  The  pre-war  period 
is  held  to  be  the  period  from  1911  to  1914.  In  case  the  business  was 
not  in  existence  in  those  years,  the  deduction  is  fixed  at  8  per  cent 
instead  of  the  7-9  per  cent.  And  in  case  there  was  no  income  or  a 
very  low .  income  during  the  pre-war  period,  the  criterion  is  the 
percentage  of  capital  earned  by  a  similar  or  representative  business. 

From  this  base  line  of  normal  profits  are  computed  the  excess 
profits,  the  tax  rising  progressively  with  the  excess,  being  fixed  at 
20  per  cent  on  the  excess  profits  up  to  15  per  cent;  35  per  cent  on  the 
excess  from  15  to  20  per  cent;  35  per  cent  on  the  excess  from  20  to  25 
per  cent;  "45  per  cent  on  the  excess  from  25  to  33  per  cent;  and  60 
per  cent  on  the  excess  profits  over  33  per  cent. 

It  is  obvious  that  the  important  point  here  lies  in  the  computation 
of  capital,  for  with  one  exception  income  is  defined  precisely  alike  in  the 
excess-profits  and  the  income-tax  laws.  The  greater  the  amount  of 
the  "invested  capital"  as  compared  with  a  given  income,  the  smaller 
will  be  the  percentage  and  the  tax.  What  constitutes  invested  capital, 
however,  is  so  elusive  as  to  be  virtually  impossible  of  precise  computa- 
tion. Not  only  will  there  be  gross  inequality  between  businesses 
which  enjoy  the  same  income  but  which  are  variously  capitalized,  thus 
putting  extra  taxation  on  small  and  conservatively  capitalized  con- 
cerns, but  all  manner  of  opportunity  will  be  afforded  for  evasion  of  the 
law.  The  effort  made  to  define  capital  in  the  law  is  unavailing. 
Invested  capital  is  defined  as  actual  cash  paid  in,  the  actual  cash  value 
of  tangible  property,  and  the  paid-in  or  earned  surplus  employed  in 
the  business.  Patents  and  copyrights  are  included  up  to  the  par  value 
of  the  stock  paid  therefor,  and  the  same  rule  is  declared  applicable  to 
the  good- will,  trade-marks,  and  franchises  or  other  intangible  property, 
provided  that  if  purchased  before  1917  the  amount  is  limited  to  20 
per  cent  of  the  capital.  The  inadequacy  of  these  provisions  is  mani- 
fest. 

It  has  been  contended,  in  defense  of  the  law,  that  it  is  on  the  whole 
immaterial  whether  the  criterion  be  sought  in  income  or  in  capital; 
for  capital,  we  are  told,  is  nothing  but  capitalized  income.  In  reality, 


WAR  FINANCE  417 

however,  capital  is  not  capitalized  income;  capital  is  the  capitaliza- 
tion, not  only  of  present  income,  but  of  anticipated  future  income, 
which  is  a  very  different  thing.  If,  as  frequently  happens,  the  antici- 
pated future  income  does  not  materialize,  there  is  a  vital  difference 
between  a  tax  on  capital  and  a  tax  on  income.  The  objection  to  the 
law  still  remains,  as  before,  that  the  choice  of  capital  not  only  con- 
stitutes a  clumsy  attempt  to  reach  taxable  ability,  but  introduces  a 
gross  inequality  in  principle  and  a  deplorable  uncertainty  in  adminis- 
tration. While  something  may  no  doubt  be  done  to  clear  up  the 
ambiguities  and  to  remove  some  crass  inequities,  enough  will  remain 
to  deprive  the  measure  of  a  claim  to  scientific  or  practical  validity. 

The  most  serious  objection  to  the  law,  however,  has  yet  to  be 
mentioned.  Even  assuming  that  the  above  difficulties  were  removed, 
that  the  capital  could  be  accurately  estimated,  and  that  it  varied  in 
amount  proportionally  with  the  income — even  on  these  unlikely 
assumptions  the  tax  would  still  be  defective. 

This  is  due  to  the  criterion  chosen  for  the  basis  of  the  graduated 
scale.  Something  can  be  said  for  a  graduated  tax  on  income;  some- 
thing can  even  be  said  for  a  graduated  tax  on  capital ;  but  it  is  difficult 
to  say  anything  in  defense  of  a  tax  which  is  graduated  on  the  varying 
percentage  which  income  bears  to  capital.  To  penalize  enterprise 
and  ingenuity  in  a  way  that  is  not  accomplished  by  a  tax  on  either 
capital  or  income — this  is  the  unique  distinction  of  the  law.  For 
in  the  first  place,  while  it  is  true  that  excess  profits  are  sometimes  the 
result,  in  part  at  least,  of  the  social  environment,  they  are  not  infre- 
quently to  be  ascribed  to  individual  ability  and  inventiveness. 
While  it  is  entirely  proper  that  a  share  of  the  profits  should  go  to  the 
community,  it  is  not  at  all  clear  that  the  tax  should  be  graduated 
according  to  the  degree  of  inventiveness  displayed.  But  there  is  a 
still  more  important  consideration.  Almost  all  large  businesses  have 
grown  from  humble  beginnings,  and  it  is  precisely  in  these  humble 
beginnings  that  the  percentage  of  the  profits  to  the  capital  invested 
is  apt  to  be  the  greatest.  The  criterion  selected,  therefore,  is  the  one 
best  calculated  to  repress  industry,  to  check  enterprise  in  its  very 
inception,  and  to  confer  artificial  advantages  on  large  and  well- 
established  concerns.  Nothing  could  be  devised  which  would  more 
effectively  run  counter  to  the  long-established  policy  of  the  American 
government  toward  the  maintenance  of  competition. 

What  then  is  the  alternative  ?  If  the  excess-profits  tax  has  come 
to  stay,  as  is  probably  the  case,  a  slight  change  in  the  criterion 


418  ECONOMICS  OF  WAR 

employed  would  accomplish  the  desired  result.  What  is  needed  is 
that  the  excess-profits  tax  should  become  a  progressive  income  tax. 
It  is  significant  that  this  is  actually  done  already  where  the  capital 
criterion  is  impossible.  The  law  provides  that  in  every  business 
without  any  capital,  or  with  only  a  nominal  capital,  a  tax  of  8  per  cent 
should  be  paid  on  the  income,  in  addition  to  the  income  tax.  This 
provision  has  indeed  the  awkward  result  of  making  earned  income 
pay  at  a  higher  rate  than  unearned  income,  but  it  is  none  the  less 
significant.  The  individual  income  tax  is  levied  on  a  highly  progres- 
sive scale,  but  the  corporate  income  tax  is  proportional.  All  of  the 
desirable  ends  sought  to  be  achieved  by  the  excess-profits  tax  would 
be  reached  by  converting  the  corporate  income  tax  into  a  progressive 
tax.  Graduation  would  then  be  applicable  in  both  cases,  the  only 
difference  being  that  while  the  test  of  ability  to  pay  would  be  sought 
for  the  individuals  primarily  in  the  sacrifice  imposed,  it  would  be 
found  for  the  business  primarily  in  the  privilege  enjoyed. 

2.    THE  TREASURY  PROGRAM  FOR  1918-19' 

In  an  announcement  dated  June  1 2  the  Secretary  of  the  Treasury 
has  made  public  what  is  practically  the  program  of  the  Treasury 
financing  for  the  coming  year.  The  new  plan  is  practically  an  exten- 
sion of  the  system  adopted  in  February  last  whereby  large  quantities 
of  Treasury  certificates  are  offered  to  the  banks  at  short  intervals  in 
amounts  roughly  proportionate  to  their  resources.  The  banks  are 
expected  to  purchase  and  hold  these  certificates  pending  the  floating 
of  an  issue  of  long-term  bonds  whose  proceeds  are  then  used  to  fund 
the  maturing  certificates.  The  expenditures  of  the  government,  as 
nearly  as  can  be  estimated,  will  require  the  sale  of  certificates  of 
indebtedness  up  to  the  first  of  November,  1918,  aggregating  approxi- 
mately $6,000,000,000.  This  would  involve  the  issue  every  two 
weeks  of  about  $7-50,000,000  of  certificates  substantially  similar  in 
character  to  those  issued  prior  to  the  Third  Liberty  Loan,  except  that 
they  will  have  various  maturities  not  exceeding  four  months.  For 
the  months  of  July  and  August  that  program  will  be  followed  as  nearly 
as  possible.  The  first  issue  of  the  certificates  will  be  dated  June  25, 
will  mature  October  25  with  interest  at  4^  per  cent,  and  similar  issues, 
it  is  expected,  will  be  made  on  Tuesday  of  every  other  week  following 
June  25. 

1  Adapted  from  "Washington  Notes,"  Journal  of  Political  Economy,  XXVI 
(July,  1918),  744-48. 


WAR  FINANCE  419 

It  is  contemplated,  however,  that  at  a  convenient  and  favorable 
period  during  the  summer  an  offering  will  be  made  to  the  general 
public  directly  and  through  the  banks  of  an  amount  yet  to  be  deter- 
mined, perhaps  $2,000,000,000  of  certificates  of  suitable  maturities 
for  use  by  taxpayers  in  paying  next  year's  taxes,  viz.,  taxes  payable 
June,  1919,  levied  under  existing  and  pending  legislation.  To  the 
extent  that  certificates  of  that  character  are  sold,  substantially  an 
equivalent  reduction  in  the  amount  of  the  regular  fortnightly  sale  of 
certificates  issued  in  anticipation  of  the  next  Liberty  Loan  will  be 
effected.  Early  information  of  the  estimated  requirements  of  the 
Treasury  is  being  conveyed  to  all  the  banks  of  the  country,  and, 
through  them,  to  those  who  expect  to  make  payment  of  taxes  in  1919. 
They  will  be  asked  to  make  arrangements  promptly  and  of  such  a 
character  that  no  delay  will  be  experienced  in  the  sale  and  distribution 
of  Treasury  certificates  of  both  issues.  The  Federal  Reserve  banks 
will  advise  all  national  and  state  banks  in  their  respective  districts 
of  the  amount  of  certificates  which  they  are  expected  to  take  from  time 
to  time  in  pursuance  of  this  program — a  sum  which  can  be  figured 
roughly  to  equal  2\  per  cent  of  gross  resources  of  each  bank  and  trust 
company  for  every  period  of  two  weeks,  or  a  total  of  5  per  cent 
monthly.  It  will  be  remembered  that  in  the  February  program  the 
amount  which  the  banks  were  asked  to  take  was  substantially  equal 
to  2  per  cent  of  the  gross  resources  for  each  period  of  two  weeks,  or  a 
total  of  4  per  cent  monthly. 

The  total  number  of  bi-weekly  offerings  of  certificates  to  be  made 
to  the  banks  will  somewhat  depend  upon  the  amount  to  be  raised 
from  the  public  through  the  sale  of  tax  certificates  as  described  above. 
The  proposal  thus  placed  before  the  banks  is  practically  equivalent 
to  a  doubling  of  the  financing  of  the  past  spring  and  winter,  and  its 
eventual  success  will  clearly  depend  upon  the  ability  to  float  a  pro- 
portionately enlarged  Liberty  Loan,  which  will  be  the  fourth  of  the 
series.  Assuming  that  this  next  Liberty  Loan  is  placed  a£  about  the 
time  the  first  issue  of  the  certificates  matures,  the  loan  would  evidently 
be  offered  toward  the  end  of  September.  Could  the  country  at  that 
time  successfully  purchase  and  absorb,  say,  six  billions  of  Liberty 
bonds  ?  The  placing  of  the  new  financing  upon  practically  this  scale 
is  clearly  necessary  if  the  present  financial  and  military  program  is  to 
be  carried  out.  Possibly  the  most  serious  doubt  in  this  connection 
is  furnished  by  the  question  whether  it  is  in  fact  feasible  and  prac- 
ticable to  spend  the  amount  of  money  which  is  to  be  raised  without 


420  ECONOMICS  OF  WAR 

merely  increasing  prices  of  commodities  to  a  corresponding  degree 
and  thus  really  defeating  or  at  least  not  advancing  the  essential  object 
of  the  plan. 

NEW   TAXATION 

It  is  of  course  recognized  that  the  whole  success  of  a  financial 
program  upon  so  great  a  scale  must  depend  upon  the  laying  of  a 
satisfactory  foundation  for  it  by  means  of  new  taxation.  Up  to  a 
very  recent  date  it  had  been  assumed  that  no  such  new  taxes  would  be 
levied  during  the  current  year,  and  the  Secretary  of  the  Treasury  had 
expressed  this  belief  in  his  Annual  Report.  The  increasing  necessities 
of  the  goverment  and  the  growing  demands  of  the  allied  countries 
established  a  basis  for  suggesting  the  alteration  of  this  tentative 
understanding,  and  such  suggestions  have  been  confirmed  by  the 
growing  conviction  that  the  present  income  and  excess-profits  law  is 
unsatisfactory  and  would  be  unworkable  were  it  not  for  the  unusual 
co-operation  of  the  community  under  the  stress  of  war  conditions. 
This  situation  led  to  the  outspoken  declaration  of  the  President  in  his 
address  to  Congress  on  May  27,  when  he  took  definite  action  in  favor 
of  a  new  measure  of  taxation,  whose  necessity  has  now  been  reluctantly 
accepted  by  Congress. 

In  a  letter  to  the  chairman  of  the  Ways  and  Means  Committee 
dated  June  5,  the  Secretary  of  the  Treasury  furnishes  some  detailed 
data  designed  to  substantiate  the  belief  that  immediate  action  is 
requisite.  The  statistical  tabulations  submitted  show  that  in  March, 

1917,  the  expenditures  were  in  round  figures  $100,000,000.     In  May, 

1918,  they  were  $1,508,195,000.     If  there  should  be  no  further  increase 
during  the  coming  fiscal  year,  the  cash  expenditures  upon  the  May 
basis  would  be  more  than  $18,000,000,000.     If,  as  seems  inevitable, 
the  increase  in  expenditures  should  continue  at  the  rate  of  $100,000,000 
per  month  for  the  next  six  months,  or  until  December,  1918,  and  if 
thereafter  the  monthly  expenditures  should  remain  stationary  until 
June  30,  1919,  the  Treasury  would  have  to  finance  expenditures 
aggregating  $24,000,000,000  during  the  fiscal  year  ending  June  30, 
1919;  or,  to  put  it  in  another  way,  if  the  average  monthly  expenditure 
should  exceed  that  for  the  month  of  May,  1918,  by  335  per  cent,  it 
will  be  necessary  to  provide  $24,000,000,000  in  the  fiscal  year  1919. 

In  the  fiscal  year  ending  June  30,  1918,  cash  disbursements  will 
amount  to  between  $12,500,000,000  and  $13,000,000,000.  Of  this 


WAR  FINANCE  421 

amount  about  one-third  will  have  been  raised  by  taxes  and  two-thirds 
by  loans,  all  of  which  will  be  represented  by  long-time  obligations,  that 
is,  bonds  of  the  First,  Second,  and  Third  Liberty  Loans  and  War 
Savings  Certificates.  On  the  strength  of*  this  showing  it  would  thus 
appear  that  with  taxes  producing  their  present  yield  it  would  be 
necessary  to  raise,  by  borrowing,  during  the  fiscal  year  1919  about 
$20,000,000,000.  The  danger  or  impossibility  of  such  an  attempt  is 
obvious  and  hence  the  development  of  a  plan  to  raise  at  least  $8,000,- 
000,000  from  taxation.  In  order  to  get  the  amount  required  the 
Secretary  of  the  Treasury  makes  the  following  suggestions : 

1.  That  one-third  Of  the  cash  expenditure  to  be  made  during  the 
fiscal  year  ending  June  30,  1919,  be  provided  by  taxation.    According  to 
estimates  this  would  involve  raising  $8,000,000,000  through  taxation. 

2.  That  a  real  war-profits  tax  at  a  high  rate  be  levied  upon  all  war 
profits.     This  tax  should  be  superimposed  upon  the  existing  excess-profits 
tax  in  such  a  way  that  the  taxpayer  should  be  required  to  pay  whichever  tax 
is  the  greater.    The  existing  excess-profits  tax  should  be  amended  in  certain 
important  particulars  «o  as  to  remove  inequalities. 

3 .  That  there  should  be  a  substantial  increase  in  the  amount  of  normal 
income  tax  upon  so-called  unearned  incomes.     Under  existing  law  earned 
incomes  above  certain  exemptions  are  taxed  4  per  cent  as  an  income  tax  and 
8  per  cent  as  an  excess-profits  tax,  making  a  total  of  12  per  cent,  while 
7/wearned  incomes,  derived  from  securities,  etc.,  are  taxed  only  4  per  cent. 
The  8  per  cent  tax  should  be  recognized  as  an  income  tax  and  the  rate  of 
12  per  cent  (4  per  cent  normal  and  8  per  cent  excess  profits)  should  be 
retained  in  respect  to  earned  incomes,  while  a  higher  rate  than  12  per  cent 
should  be  imposed  on  unearned  incomes. 

4.  That  heavy  taxation  be  imposed  upon  all  luxuries. 

The  program  thus  outlined,  taken  in  conjunction  with  the  immense 
borrowing  plan,  will  come  close  to  doubling  the  burdens  imposed  upon 
the  community  during  the  past  year  and  again  raises  the  question 
whether  there  is  a  savings  margin  in  the  country  large  enough  to 
provide  means  for  carrying  any  such  load.  Up  to  date  the  highest 
estimate  of  produced  wealth  over  consumption,  i.e.,  savings,  has  been 
$18,000,000,000.  If  $24,000,000,000  is  to  be  obtained,  there  must 
therefore  be  either  an  increased  production  or  a  decreased  consump- 
tion amounting  to  $6,000,000,000.  That  the  amount  required  can  be 
obtained  by  either  method  is  naturally  gravely  to  be  doubted,  and  the 
alternative — that  of  merely  bidding  up  prices  through  urgent  demand 
for  goods — presents  itself  as  a  danger. 


422  ECONOMICS  OF  WAR 

3.     CRITICISM  OF  PROGRAM  FOR  1918-19' 

Speaking  generally,  the  financial  program  adopted  by  Congress  on 
entering  the  war  was  a  sound  program.  The  lesson  taught  by  the 
financial  management  of  the  war  of  1812  and  that  of  1861  seems  to 
have  been  learned.  Exclusive  reliance  for  the  needed  revenue  was 
placed  neither  on  loans  nor  on  taxes;  nor  was  the  amount  to  be  raised 
by  new  taxes  limited  to  the  interest  on  new  issues  of  bonds.  The  rule 
followed  seems  to  have  been  to  secure  as  much  as  possible  by  taxation 
and  to  rely  for  the  remainder  upon  the  use  of  public  credit.  This  is  a 
sound  rule.  Other  things  being  equal,  there  is  no  question  of  the 
superiority  of  taxes  over  loans  as  a  means  of  securing  capital,  espe- 
cially if  that  capital  is  destined  to  go  up  in  smoke.  The  student  of 
finance  can  be  readily  persuaded  that  $i  should  be  collected  by  taxa- 
tion for  each  $2  secured  by  loans. 

It  is  not  enough,  however,  that  an  adequate  amount  of  money  be 
secured  through  taxes.  The  task  of  the  financier  is  more  exacting. 
He  must  exercise  great  care  as  to  the  kinds  of  taxes  used  and  the  rates 
imposed.  The  money  contributed  by  taxes  must  be  secured  this  year 
in  such  a  way  that  an  equal  amount,  or  perhaps  an  added  amount,  can 
be  secured  the  next  year,  the  year  following,  and  so  On,  until  the 
exigency  has  passed.  The  fund  from  which  taxes  are  taken  should, 
like  the  widow's  cruse  of  oil,  be  ever  full.  This  is  the  kernel  of  the 
problem  of  war  financiering. 

In  the  main,  also,  the  so-called  "war  taxes,"  levied  by  the  acts  of 
September  8,  1916,  and  October  3,  1917,  may  be  approved,  when 
regarded  from  the  point  of  view  of  social  justice  or  of  economic  analy- 
sis. In  one  respect,  the  principle  on  which  they  rest  is  new  to  the 
American  people.  They  are  a  frank  recognition  of  the  fac£  that  a 
part  of  the  product  of  every  business  is  a  co-operative  or  social  product, 
and  that  the  government,  which  stands  for  the  collective  interests  of 
all,  should  supply  its  exigency  needs  by  taking  back  from  each  what 
the-  co-operative  work  of  all  has  produced,  but  which  the  market  has 
failed  to  distribute.  There  is  no  other  defense  of  the  excess-profits  or 
the  income  taxes. 

Provided  the  extraordinary  demand  of  the  war  can  be  satisfied 
by  such  portion  of  the  social  product  as  can  be  soaked  up  by  income 
taxation,  the  argument  for  the  exclusive  use  of  such  taxes  is  at  least 

1  By  Henry  C.  Adams,  in  the  Chicago  Tribune,  June  8,  1918. 
ED.  NOTE. — Mr.  Adams  is  professor  of  taxation  and  finance  at  the  University 
of  Michigan. 


WAR  FINANCE  423 

plausible.  Raise  the  rates  and  make  the  taxes  already  in  operation 
more  prolific.  This  seems  to  be  the  chief  feature  of  Secretary  Mc- 
Adoo's  plan  of  getting  the  $8,000,000,000  from  taxes  for  the  next 
fiscal  year.  Is  it  a  good  plan  ? 

There  are  two  reasons  why  the  taxes  named  above  should  not  be 
made  the  exclusive  basis  of  a  system  of  war  taxes.  In  the  first  place 
it  should  be  noted  that  the  success  of  the  surplus-profits  and  differen- 
tial income  taxes  during  the  first  year  of  the  war  is  no  proof  that  they 
will  serve  equally  well  the  second  year  or  the  third  year.  The 
business  conditions  and  bookkeeping  results  of  the  years  1916  and 
1917  were  peculiar.  It  by  no  means  follows  that  1918,  1919,  and  1920 
will  show  the  same  results.  Consider,  for  example,  the  so-called 
national  savings. 

For  the  years  1900  to  1910,  according  to  King's  estimate  based  on 
census  figures,  the  average  annual  savings  of  the  United  States  were 
$2,000,000,000.  For  the  half-decade  prior  to  1915,  it  is  said  annual 
savings  ranged  around  $5,000,000,000.  In  1916,  the  corporate 
surplus  and  increment  of  values,  called  savings,  are  estimated  at 
$16,000,000,000,  and  for  1917,  $18,000,000,000.  No  great  stress  is 
laid  on  these  figures  as  figures.  They  may  be  wide  of  the  mark,  but 
the  trend  which  they  show  is  typical  of  the  computations  on  which 
reliance  was  placed  for  the  levy  of  the  income  taxes  of  1916  and  1917, 
and  on  which  Secretary  McAdoo  now  relies  for  obtaining  $8,000,- 
000,000  by  improving  the  income-tax  machinery. 

Whence  come  these  enormous  profits  ?  Do  they  stand  for  a  real 
product  ?  Or  are  they  mere  figures  for  which  there  is  no  correspond- 
ing material  fact,  at  least  to  their  full  amount  ?  If  the  savings  given 
above  measure  an  actual  industrial  attainment  of  the  American 
business  world,  there  is  no  need  of  broadening  the  basis  of  taxation  in 
order  to  collect  sufficient  funds  to  meet  ever-increasing  expenditures; 
if,  on  the  other  hand,  these  figures  are  the  work  of  incomplete  analysis, 
a  system  of  taxation  built  on  them  must,  sooner  or  later,  encounter 
serious  difficulties. 

It  is  only  necessary  to  place  by  the  side  of  these  figures,  which  are 
said  to  measure  the  savings  of  the  years  1916  and  1917,  the  increase  in 
wholesale  prices  of  the  same  years  to  disclose  the  nature  of  the  incom- 
plete analysis  on  which  they  rest.  The  movement  in  wholesale  prices 
during  the  eight  years  from  1910  to  1917,  inclusive,  is  given  in  the 
following  table,  taken  from  an  article  on  "Inflation,"  recently  pub- 
lished by  Dr.  Kemerer.  The  table  shows  that  for  the  six  years  1910 


424  ECONOMICS  OF  WAR 

to  1916  wholesale  prices  in  the  United  States  were  practically  stable; 
in  1916  they  show  an  advance  of  twenty-five  points,  and  in  1917  of 
seventy-eight  points,  above  the  base.  From  the  outbreak  of  the  war 
in  1914  to  1917  prices  rose  75  per  cent,  but  this  rise  was  confined  to 
the  two  years  1916  and  1917. 

INDEX  NUMBERS  OF  WHOLESALE  PRICES 

Year                                                                                                                Index  Number 
I9IO ' 99 

I9II 97 

1912 ioi 

1913 192 

1914. .  .    ioi 

i9JS '• ioi 

1916 125 

1917 178 

It  is  certainly  significant  that  the  two  years  that  show  abnormal 
profits  are  the  same  years  that  show  abnormal  prices.  I  cannot  go 
into  this  analysis  to  show  how  much  of  the  ^increased  saving"  of  the 
years  named  was  due  to  increased  industrial  activity  and  how  much 
to  inflation  of  wholesale  prices.  My  conclusion  is  tenable,  whatever 
the  ratio  disclosed.  This  parallel  between  the  movement  in  savings 
and  the  movement  in  prices  cannot  be  a  coincidence.  Some  portion — 
and  a  considerable  portion — of  the  $18,000,000,000  surplus  of  1917 
is  due  to  the  75  per  cent  increase  in  prices  and  will  disappear  when 
increased  prices  have  reacted  fully  on  costs  of  production.  To  that 
extent  the  productivity  of  the  surplus-earnings  and  differential  income 
taxes,  as  shown  in  1917,  will  disappear. 


4- 

When  imposed  early  in  a  war,  excess-profits  taxes  that  do  not  leave 
open  an  inducement  to  transfer  from  peace  to  war  business  will  be 
suicidal,  so  long  as  we  rely  upon  profit  margins  as  the  method  of 
industrial  shifting.  Will  the  point  at  which  the  tax  begins  make 
allowance  for  increased  risks,  or  will  it  be  at  a  flat  rate,  making  no 
discrimination  between  standardized  peace  business  and  uncertain 
war  manufacture  ?  If  the  latter,  the  business  manager  who  contem- 
plates a  shift  from  peace  to  war  manufacture  will  usually  not  be  willing 
to  make  the  change.  This  is  one  of  the  points  that  our  friends  who 

1  An  editorial. 


WAR  FINANCE  425 

urge  taxation  "  to  the  bone,"  especially  on  war  business,  quite  generally 
overlook. 

The  development  of  a  scientific  system  of  taxation  in  time  of  war 
must  take  as  its  point  of  departure  the  industrial  requirements  of  the 
situation;  and  ordinary  peace-time  principles  of  finance  may  have 
to  assume  a  position  of  secondary  importance.  Thoroughgoing 
reorganization  of  industry  is  even  more  imperative  than  distributing 
the  burdens  of  taxation  among  the  various  classes  of  society  according 
to  their  relative  abilities  to  pay  at  the  moment.  For  the  ability  of 
any  or  all  to  pay  ultimately  may  be  dependent  upon  immediate 
industrial  mobilization.  Taxation  may  be  made  an  effective  instru- 
ment for  promoting  rapid  industrial  reorganization  or  it  may  be  made 
an  agency  that  works  at  cross-purposes  with -the  paramount  require- 
ments of  the  situation.  In  this  connection  it  should  be  observed  that 
the  argument  for  conscription  of  income  does  not  start  with  this 
point  of  view.  It  runs  rather  in  terms  of  equality  of  sacrifice.  The 
real  corollary  of  conscription  of  men  for  military  purposes  is  not 
conscription  of  income  but  conscription  of  men  and  of  capital  for  the 
industrial  army.  Conscription  of  the  use  of  capital,  not  of  capital 
itself,  is  a  significant  distinction. 

5.    ARGUMENT  FOR  TAXES  ON  LUXURIES1 

The  tax  on  "retail  sales"  is  recommended,  not  only  to  raise 
additional  revenue,  but  for  the  equally  important  purpose  of  dis- 
couraging wasteful  consumption  and  unnecessary  production.  It 
would  be  superfluous  at  this  stage  of  the  war  to  dwell  upon  the 
fact  that  waste  and  extravagance  are  akin  to  treason.  We  pay 
lip  homage  to  this  truth,  but  we  neglect  its  practice.  We  are  not 
yet  cutting  our  personal  budgets  sufficiently  to  make  the  excess  of 
national  production  over  national  consumption  equal  to  the  needs  of 
the  government. 

The  retail-sales  tax  distinctly  labels  the  taxed  article  as  luxurious 
and  serves  notice  that  the  government's  ban  is  upon  it.  The  specific 
tax  on  luxuries,  however,  is  paid  by  the  producer  or  dealer  and  is 
likely  to  reach  the  consumer  concealed  in  the  form  of  an  increased 
price.  At  this  time  it  is  necessary,  not  only  to  tax  extravagance,  but 
to  make  the  tax  known  and  felt  by  the  taxpayer.  It  is  for  this  reason 

1  Adapted  from  a  Memorandum  of  Possible  Sources  of  Revenue  suggested 
by  the  Treasury  Department  and  submitted  to  the  Ways  and  Means  Committee, 
1918. 


426  ECONOMICS  OF  WAR 

that  despite  some  administrative  objections  a  tax  upon  retail  sales  is 
so  distinctly  worth  while. 

Assuming  the  correctness  of  this  general  attitude,  it  seems  to 
follow  that  the  retail-sales  tax  to  be  effective  must  be  heavy.  The 
really  needy  consumer  is  amply  protected  by  exempting  from  the  tax 
altogether  those  classes  of  articles  which  the  poor  actually  buy  or  need 
to  buy.  Other  articles  must  be  taxed  vigorously  if  the  tax  is  not  to  be 
interpreted  as  legitimatizing  extravagance.  Place  a  20  per  cent  tax 
on  nonessentials  and  the  consumer  will  pause  before  buying.  Impose 
only  a  10  per  cent  tax  and  he  will  frequently  satisfy  his  conscience  by 
purchasing  the  article  and  paying  the  tax.  This  aspect  of  the  question 
seems  vital.  Whether  20  per  cent  is  high  enough  to  discourage 
extravagance  is  a  question;  that  10  per  cent  is  too  low,  under  existing 
conditions  admits  of  little  question. 

It  is  highly  important  that  the  consumption  of  unnecessary  things 
be  given  up,  in  order  that  both  capital  and  labor  may  be  liberated  for 
the  production  of  those  things  which  the  government  needs  for  the 
prosecution  of  the  war. 

For  the  same  reason,  it  is  important  that  the  usual  consumption  of 
even  necessary  things  should  be  curtailed.  An  industrial  condition 
adapted  to  peace  demands  must  give  place  to  an  industrial  condition 
adapted  to  war  demands  before  the  business  activities  of  the  nation 
can  be  said  to  be  mobilized  for  war.  Processions  and  brass  bands 
cannot  accomplish  this  result,  nor  an  appeal  to  patriotism,  nor  the 
wielding  of  the  big  stick.  There  is  one  way,  and  one  way  only,  of 
attaining  this  result,  and  that  is  through  the  prices  of  things  that 
people  buy. 

If,  now,  the  government  could  secure  a  portion  of  the  revenue  it 
needs  by  taxes  that  work  their  way  into  prices  in  such  a  manner  as  to 
direct  the  consumption  of  the  people,  and,  consequently,  their  pro- 
duction, along  proper  lines,  the  by-product  of  such  a  financial  policy 
would  be  even  more  significant  than  its  direct  product.  Indeed, 
without  this  by-product  no  financial  program  can  succeed.  A  sound 
financial  policy  alone  will  not  obtain  the  needed  funds,  nor  obtain 
them  in  such  a  way  that  future  revenues  may  be  taken  from  the  same 
source;  a  sound  financial  policy  must,  in  addition  to  such  results, 
exert  a  positive  influence  for  the  accomplishment  of  that  industrial 
readjustment  which  the  advent  of  a  great  war  makes  necessary.  The 
federal  income-tax  laws  have  no  such  influence,  and  for  this  reason 
are  to  be  condemned  as  exclusive  war  taxes. 


WAR  FINANCE  427 

The  general  conclusion  of  the  foregoing  comments  may  be  sum- 
marized as  follows: 

The  initial  burden  of  a  war  is  the  industrial  transition  from  a 
condition  of  peace  to  a  condition  of  war.  Every  act  of  government 
that  touches  business,  and  especially  taxation,  should  be  shaped  to 
the  accomplishment  of  that  transition.  The  excess-profits  and  dif- 
ferential income  taxes  are  over  the  top  of  the  problem,  and,  conse- 
quently, are  incompetent  as  war  taxes.  The  new  war  taxes  to  be 
passed  by  the  present  congress  ought  to  be  written  from  a  more 
comprehensive  point  of  view.  They  ought  to  be  regarded  as  a  part 
of  a  systematic  program  of  war  financiering. 

L.    The  Thrift  Problem,  or  The  Consumer's  Dilemma 
i.     THE  APPEAL  TO  SPEND 

A.'    SAMPLE   ADVERTISEMENTS1 

Most  newspapers  in  Massachusetts  have  opposed  the  idea  of 
devoting  a  maximum  amount  of  the  national  resources  to  winning  the 
war.  On  their  advertising  pages  they  have  urged  people  to  buy  the 
very  things  the  government  asks  us  not  to  buy;  in  their  news  columns 
they  have  suppressed  the  message  of  the  national  government  urging 
thrift;  and  editorially  they  have  not  supported  the  government  policy. 
The  following  quotations  are  from  Boston  papers  of  April  6  to  May  4, 
the  period  of  the  Third  Liberty  Loan  drive. 

Among  various  advertisements  are:  "There  must  be  increased 
activity  in  all  business."  "Spend  all  you  can  afford  ....  dress  as 

well  as  you  can — don't  show  yourself  a  miser War  is  not  won 

by  killing  business  of  any  kind."  Or  again,  "If  people  are  going  to 
judge  by  clothes  (and  they're  going  to  whether  or  not  you  happen  to 
like  it) — why  not  wear  clothes  that  will  make  them  judge  you  a 
World-Beater  instead  of  a  Gutter-Pup!  ....  Wearing  poor  clothes 
is  just  as  foolish  as,"  etc.  "  Clothes  are  going  to  cost  a  whole  lot  more! 
You  don't  need  a  rabbit's  foot  ....  to  get  in  out  of  the  rain!  All 
you  need  is  good  old  COMMON  SENSE.  Common  sense  enough  to 
buy  the  clothes  you're  going  to  need  while  present  values  are  still 

obtainable Good  clothes  are  not  only  going  to  be  high — they're 

going  to  be  WELL  NIGH  UNOBTAINABLE!" 

1  By  Sinclair  Kennedy.  Adapted  from  an  open  letter,  entitled  "Why  Massa- 
chusetts Lags,"  dated  June  4,  1918. 

ED.  NOTE. — Sinclair  Kennedy  is  the  author  of  Pan  Angles. 


428  ECONOMICS  OF  WAR 

A  typical  article  states:  ''Economy  in  clothes  is  not  pursued  to  a 
great  extent  for  several  reasons.  One  is  that  we  all  realize  that  to 
some  extent  trade  must  run  in  its  usual  channels.  We  must  not  cut 
down  too  stringently  on  any  sort  of  spending,  for  fear  we  may  create 

a  sort  of  panic  and  bring  hardship  for  some  classes  of  workers 

But  last  year's  skirts!  Dear  me,  they  are  quite  impossible,  most  of 
them." 

An  editorial  remarks,  "Economies  of  dress  are  at  maximum  in 
savage  communities,  but  the  'simple  life'  is  obtained  there  at  the  cost 
of  civilization  itself." 

Compare  these  with  the  appeal  of  the  government  distributed  by 
the  National  War  Savings  Committee:  "Are  you  wearing  out  your 
old  things?  By  so  doing  you  are  saving  labor  and  material  that 
should  be  employed  for  war  work To  dress  or  live  extrava- 
gantly in  war  times  is  not  only 'unpatriotic,  it  is  bad  form 

Remember  that  laying  in  a  supply  for  the  future  may  be  good  house- 
keeping in  peace  times — in  war  times  it  is  unpatriotic,  hoarding,  and 
hinders  the  government.  Don't  question  whether  you  can  afford  it, 
but  whether  the  country  can  afford  to  let  you  have  it." 

The  day  after  the  Third  Liberty  Loan  drive  terminated  a  Massa- 
chusetts paper  printed  an  article  concerning  automobiles,  warning  its 
readers  not  to  believe  all  the  stories  about  the  automobile  industry, 
"particularly  dispatches  from  Washington."  It  stated  that  it  was 
patriotic  for  motorists  to  use  up  gasolene  in  their  cars  and  said,  "If 
you  are  thinking  of  buying  a  car,  go  ahead  and  do  it.  There  will  be 
fuel  enough  and  tires  enough  to  guarantee  you  a  great  many  miles  of 
enjoyable  riding." 

Compare  this  with  the  government  appeal:  "Do  you  save  gaso- 
lene, rubber,  and  skilled  labor  by  cutting  out  all  unnecessary  use  of 
motor  cars?  Gasolene  is  one  of  the  most  important  war  supplies. 
Every  gallon  counts.  Rubber  is  also  in  demand.  Chauffeurs  are 
needed  on  government  work." 

B.      ARE   YOUR   ECONOMICS   ON   STRAIGHT?1 

Are  you  one  of  those  who  preach  that  our  duty  at  this  time  is  to 
skimp  and  save  and  deny  ourselves  all  but  the  bare  necessities  of  life  ? 

Are  you  for  the  "sackcloth  and  ashes"  stuff — or  do  you  realize 
that  it  is  just  because  we  are  the  most  luxury-loving  people  on  earth 
that  we  are  also  the  richest  and  therefore  have  been  called  upon  to 

1  By  E.  Le  Roy  Pelletier.  Adapted  from  "Are  Your  Economics  On  Straight  ?  " 
Leslie's  Weekly  (May  n,  1918),  p.  659.  Copyright  by  E.  Le  Roy  Pelletier,  1918. 


WAR  FINANCE  429 

finance  and  to  fight  to  a  finish  this  most  "extravagant"  of  all  wars? 
Listen— No  man  ever  made  a  fortune  by  saving.  No  community 
ever  got  rich  by  limiting  its  people  to  the  bare  necessities  of  life.  All 
surplus  wealth  is  derived  from  the  manufacture  and  sale  of  luxuries. 
Limit  yourself  to  the  use  of  necessities  only  and  you'll  stop  the  pro- 
duction of  all  but  necessities.  For  all  progress,  all  civilization,  all 
wealth,  beyond  the  bare  needs  of  the  moment  are  the  direct  result 
of  the  production  and  sale  of  luxuries. 

We  hear  a  lot  nowadays  to  the  effect  that  we  Americans  are  a 
wasteful  and  extravagant  people.  Yet  when  the  war  had  been 
precipitated  by  the  most  "frugal"  people  on  earth — except  the  more 
primitive  races  of  savages — we,  the  "extravagant"  nation,  were  asked 
to  finance  and  to  prosecute  the  war  to  a  successful  finish.  And  we 
expect  to  do  this  from  the  surplus  left  from  our  extravagance.  Yes! 
And  it  is  because  of  our  very  "extravagance"  that  we  have  the  money 
to  do  it.  Being  the  most  luxury-loving,  luxury-enjoying,  luxury- 
demanding  people  on  earth,  our  surplus  is  the  greater.  Civilization, 
culture,  progress,  impose  on  those  who  crave  them  both  mental  and 
physical  effort.  Stop  the  effort — and  you  retrograde  to  the  status  of 
the  Hottentot. 

China  is  wonderfully  rich  in  natural  resources — yet  her  people  are 
deplorably  poor.  If  China  has  the  resources,  why  are  not  the  Chinese 
wealthy  ?  Why,  the  Chinese  have  worn  the  same  styles  of  clothing 
for  a  thousand  years  and  have  subsisted  on  one  diet — plain  rice!  The 
Japs  tried  the  same  forms  of  "frugality"  for  centuries  and  just  man- 
aged to  subsist.  When  they  began  to  copy  American  "  extravagance  " 
they  became  a  world-power. 

Oatmeal  put  up  in  a  box  with  a  fancy  name  and  sold  for  four  times 
its  value  as  oatmeal  is  a  familiar  form  of  American  "extravagance." 
But  a  box  of  it  would  resurrect  India.  And  if  you  could  persuade  the 
Chinese  to  eat  "compote  de  riz"  instead  of  just  rice,  there'd  be  hope 
for  them,  too!  From  the  wealth  created  by  their  "extravagance" 
they  would  become  rich. 

There's  small  profit  in  the  production  and  sale  of  raw  materials. 
One — or  at  most  a  few — share  in  that  profit.  Save  the  crude  ore  if 
you  will — deny  yourself  the  luxury  of  a  watch  or  a  motor  car — but 
what  will  you  do  with  the  ore  then  ?  Where  derive  the  wherewithal 
for  even  the  necessities  of  life  ? 

This  idea  that  in  order  to  finance  a  war  we  must  designate  as 
"  nonessentials "  those  industries  from  which  our  greatest  help,  both 
material  and  financial,  come,  shows  a  deplorable  lack  of  knowledge  of. 


430  ECONOMICS  OF  WAR 

the  very  fundamentals  of  economic  principles.  Buy  the  piano  you 
want;  buy  the  diamond  necklace;  buy  the  automobile — and  thereby 
keep  American  workmen  busy  and  enable  them  to  do  their  part,  which 
they  are  only  too  eager  to  do,  in  helping  finance  the  war. 

It's  all  wrong — this  idea  that  in  order  to  finance  the  war  we  must 
deprive  ourselves  of  all  but  the  bare  necessities  of  life.  Rank  sophis- 
try those  phrases  "an  old  suit  of  clothes  is  a  badge  of  honor,"  and  "a 
dollar  paid  for  a  ball  for  a  boy  to  play  with  is  a  traitor  dollar."  But 
this  preaching  that  we  must  don  sackcloth,  cover  ourselves  with 
ashes,  bow  down  in  grief,  deny  ourselves  the  luxuries  to  which  we  have 
been  accustomed — and  thereby  stop  their  manufacture  and  sale — 
that's  contrary  to  all  laws  of  economics.  Let's  get  down  to  first 
principles — let's  correct  our  angle  on  economics,  for  we  are  missing 
the  mark,  most  of  us.  The  facts  are  camouflaged  and  we  are  shooting 
at  a  dummy. 

C.      INDIVIDUAL  VERSUS  NATIONAL  WELFARE1 

On  August  5,  1914,  the  day  after  war  was  declared,  I  increased 
our  advertising  space.  From  that  day  I  have  been  buying  all  the 
advertising  space  available.  I  would  do  more  advertising  today  if 
I  could  get  the  space.  We  are  limited  only  by  the  limitations  of  the 
newspapers.  We  are  taking  right  now  every  inch  they  will  give  us 
and  at  rates  that  would  make  us  in  the  states  turn  somersaults  and 
fall  over  backwards.  I  am  paying  at  the  rate  of  $i  per  agate  line 
for  display  space  right  now.  I  will  take  more  space  if  they  will  give 
it  to  me — and  at  that  rate.  I  probably  will  pay  more  before  the  war 
is  over.  But  I  will  take  all  they  will  give. 

The  first  four  months  of  this  year  have  been  the  biggest  four 
months  in  our  history.  This  growth  has  come  because  we  have  forced 
it.  At  the  beginning  of  this  year  we  were  the  sixteenth  largest  house 
of  the  kind  in  the  world.  At  the  end  of  this  year  we  will  be  the  sixth. 
Within  two  years  after  the  new  store  building  is  completed  we  will 
be  first. 

A  big  factor — a  very  big  factor — in  this  record  has  been  and  will 
continue  to  be  newspaper  advertising.  We  never  could  have  broken 
through  these  traditions  over  here  without  it.  We  had  to  use  all 

1  By  Harry  Gordon  Self  ridge.  Statement  given  to  the  London  press  on 
June  30,  1918. 

ED.  NOTE. — Mr.  Selfridge  is  the  American  merchant  who  has  "captured" 
London  with  American  methods.  He  has  often  been  quoted  in  the  United  States 
since  our  entrance  into  the  war  as  "an  authority  on  the  business  side  of  war." 


WAR  FINANCE  431 

we  could  to  break  down  prejudices.  We  made  people  stop,  look,  and 
listen.  Then  the  store  itself  did  the  rest.  We  now  talk  to  millions 
of  people  every  day  through  our  advertising  columns,  and  they  believe 
in  us,  trust  us,  respond  to  that  advertising  quickly  and  continue  to 
be  our  customers  in  all  kinds  of  weather.  The  large  business  enter- 
prise that  is  not  going  the  limit  in  advertising  just  now  is  making  a 
huge  mistake. 

Now,  more  than  at  any  other  time,  it  is  necessary  to  push  the 
display  advertising.  If  retrenchments  appear  necessary  they  should 
be  made  in  every  other  department  but  the  publicity  one — the 
newspaper-advertising  one.  These  prices  they  are  soaking  us  now 
for  space  are  simply  awful — but  I'll  take  more  space  if  they  will  give 
it  to  me. 

D.      KEEP  BUSINESS  NORMAL1 

The  United  States  has  agreed  to  do  its  full  part  in  the  war.  If 
it  is  to  do  its  full  part  it  must  protect  itself  against  panic.  Certain 
tendencies  are  now  making  themselves  felt  which  are  likely  to  make 
the  people  over-apprehensive  and  to  produce  commercial  insecurity 
if  they  are  not  halted.  We  must  produce  all  the  provisions  we  can. 
We  must  avoid  waste  as  a  patriotic  duty.  These  are  movements  to 
enlarge  the  commercial  activities  of  the  nation,  not  to  contract  them. 
The  United  States  directors  of  the  International  Association  of  Rotary 
Clubs  therefore  appeal  to  the  people  of  the  United  States  to  keep 
business  as  nearly  normal  as  possible. 

But  those  who  promise  a  rigid  closing  down  of  normal  purchases 
to  the  line  of  bare  necessity  are  promising  a  course  which  will  choke  the 
flow  of  our  trade  down  to  the  lowest  livable  minimum.  If  the  women 
of  the  United  States  stop  buying  clothes  in  order  to  give  money  to 
any  one  of  a  hundred  worthy  war  causes  we  shall  very  shortly  have  a 
series  of  failures  among  American  merchants  dealing  in  woman's 
ready-to-wear  garments.  Business  is  a  great  chain  of  interlocking 
enterprises.  If  the  grocers  fail,  or  the  house-furnishers,  or  the  dealers 
in  any  other  commodity,  their  failure  brings  something  of  disaster  into 
every  other  field  of  commerce.  The  reasonable  prospect,  therefore, 
of  the  cries  now  being  soujided  for  restrictions  beyond  the  stoppage 
of  waste  is  a  general  disturbance  of  business  conditions  which  will 
threaten  the  whole  nation  with  calamity. 

Great  Britain  adopted  a  slogan  at  the  outset  of  the  war  which 
American  business  men  will  do  well  to  make  their  own  at  this  stage 

1  By  the  International  Association  of  Rotary  Clubs,  representing  all  types  of 
business,  with  organizations  in  more  than  two  hundred  American  cities. 


432  ECONOMICS  OF  WAR 

of  our  participation  in  the  same  war.  It  was  "Business  as  Usual." 
If  the  country  can  continue  its  general  business  substantially  as  usual 
it  can  meet  the  new  war  taxes  and  subscribe  to  the  new  war  causes 
somewhere  nearly  in  accordance  with  its  means.  But  if  there  is  a 
panic,  the  return  from  the  taxes  and  the  subscriptions  to  the  relief 
movements  will  both  suffer  heavily.  The  Rotary  Clubs  of  the 
United  States  believe  that  citizens  render  patriotic  service  in  this 
situation  who  close  their  ears  to  propositions  menacing  the  normal 
business  conditions  of  the  country.  Workingmen  who  desire  to 
continue  at  work,  merchants  who  desire  to  keep  open  their  stores  as 
usual,  manufacturers  producing  wares  other  than  munitions,  have  a 
common  need  and  a  common  opportunity  to  serve  their  families,  their 
country,  and  their  war  by  silencing  everywhere  alarms  over  the  effect 
of  the  war  upon  business  and  unconsidered  movements  for  economy. 
The  surest  way  to  preserve  American  prosperity  is  to  maintain  normal 
industrial,  commercial,  and  social  activities. 

2.     THE  APPEAL  TO  SAVE 

A.      LUXURIES   AND   EXTRAVAGANCE   IS   TREACHERY1 

Luxuries  and  extravagance  must  go  completely  out  of  fashion — 
they  should,  in  fact,  be  considered  little  short  of  treachery.  There 
is  not  enough  capital,  labor,  transportation,  or  raw  material  to  go 
around  if  those  industries  which  are  not  essential  to  the  conduct  of 
war  are  continued  at  their  normal  productiveness.  Every  unessential 
industry  which  continues  in  operation  must  be  considered  as  bidding 
against  the  nation  for  its  life's  blood.  Every  unessential  industry 
which  burns  coal  deprives  the  essential  industries  by  just  so  much 
of  the  supply  available  for  their  purposes.  Every  man  who  buys  a 
new  overcoat  is  bidding  against  Uncle  Sam,  who  is  buying  overcoats 
for  soldiers.  And  every  dollar  spent  on  a  luxury  is  helping  to  support 
an  unessential  industry  in  the  competitive  consumption  of  essentials. 

B.      CONSUMPTIVE   SLACKERS* 

If  I  were  to  stand  on  the  street  corner  or  some  other  public  place 
and  lift  up  my  voice  in  impassioned  oratory  to  persuade  men  to  stay 
out  of  the  Army  and  the  war  industries,  saying  to  them,  "Don't 

1  Adapted  from  Third  Liberty  Loan  Committee  of  the  Federal  Reserve  Bank 
of  New  York. 

3  By  Thomas  Nixon  Carver.     In  New  York  Evening  Post,  February  u,  1918. 

ED.  NOTE, — Mr.  Carver  is  professor  of  political  economy  at  Harvard  Univer- 
sity. 


WAR  FINANCE  433 

enlist!  Don't  go  into  the  shipyards!  Don't  go  into  the  munition 
factories!  Don't  go  into  the  coal  mines!  Don't  work  for  the  rail- 
roads! Don't  go  onto  the  farms  to  help  produce  food!" — I  should 
certainly  be  mobbed,  if  the  police  did  not  take  me  to  jail,  and  I  should 
deserve  all  the  rough  treatment  that  I  should  receive. 

There  are  other  and  more  effective  ways  than  street  oratory  of 
persuading  men  to  stay  out  of  the  industries  which  are  essential  to 
the  running  of  this  war.  .  Street  oratory  seldom  accomplishes  any- 
thing, and  the  street  orator  who  tries  to  keep  men  out  of  the  war 
industries  is  not  a  very  serious  menace,  though  he  ought  clearly  to 
be  abated  as  a  public  nuisance.  If  I  really  wanted  to  accomplish 
such  a  disloyal  purpose  as  to  keep  men  out  of  the  war  industries,  I 
should  spend  as  much  money  as  I  could  for  nonessentials  and  should 
advise  everyone  else  to  do  the  same.  I  should  publish  articles  advis- 
ing against  too  much  economy  and  should  do  all  in  my  power  to  get 
people  to  spend  their  money  for  nonessentials.  I  should  advertise 
nonessentials  in  as  alluring  forms  as  I  could  invent.  Every  dollar 
which  is  spent  for  these  things  will  hire  someone  to  make  and  sell 
them,  and  the  more  these  things  are  bought  the  more  man  power  will 
be  hired  to  stay  in  the  nonessential  and  out  of  the  essential  industries. 
That  is  a  much  more  effective,  as  well  as  a  much  safer,  way  of  keeping 
men  out  of  the  war  industries. 

I  am  not  a  believer  in  mob  violence,  but  if  there  is  anyone-  who 
deserves  to  be  mobbed,  it  is  not  these  poor  simpletons  who  make 
ineffective  speeches  against  working  in  the  war  industries,  though 
they  are  bad  enough:  it  is  rather  those  respectable  people,  some  of 
them  in  positions  of  high  authority,  who  still  persist  in  advising  people 
that  they  must  continue  spending  their  money  freely  for  things  which 
they  do  not  need,  in  order  that  business  may  not  be  disarranged. 

C.      THE   FUNCTION   OF   WAR   SAVINGS1 

The  war  savings  movement  is  not  a  campaign  to  sell  bonds  in  small 
denominations;  the  war  savings  movement  is  essentially  a  movement 
to  release  labor  and  capital — meaning,  by  capital,  farms,  and  mines, 
and  factories,  and  railroads,  and  ships,  and  all  things  concerned  with 

1  By  D wight  W.  Morrow.  Adapted  from  "The  Meaning  of  the  War  Savings 
Movement,"  in  Economic  Conditions  of  Winning  the  War  (Proceedings  of  the 
Academy  of  Political  Science  in  the  City  of  New  York),  VII,  711-14.  Copyright 
by  the  Academy  of  Political  Science,  1918. 

ED.  NOTE. — Mr.  Morrow,  a  prominent  attorney  associated  with  J.  P.  Morgan 
&  Co.,  New  York,  is  director  of  the  War  Savings  Committee  for  New  Jersey. 


434  ECONOMICS  OF  WAR 

production  and  distribution — meaning,  by  labor,  those  who  render 
service  of  any  and  every  kind.  The  war  savings  movement  is  essen- 
tially a  movement  to  put  the  entire  national  output,  over  and  above 
the  requirements  of  healthy  and  efficient  sustenance,  at  the  disposal 
of  the  government  in  order  that  it  may  be  abundantly  supplied  with 
all  things  needed  at  the  point  of  contact  with  the  enemy. 

It  is  the  purpose  of  the  War  Savings  Committee  in  this  country 
to  do  something  of  the  work  that  was  done  and  is  being  done  by  the 
War  Savings  Committee  of  England,  to  bring  that  fact  home  to  all 
the  people  of  the  United  States — the  fact  that  war  is  a  most  unusual 
business  for  a  peace-loving  nation.  When  the  War  Savings  Com- 
mittee started  in  England,  when  they  expressed  the  very  ambitious 
purpose  of  teaching  political  economy  to  all  the  people  of  a  nation, 
they  were  laughed  at.  Yet  that  is  what  they  attempted.  They  went 
before  the  people  of  England  with  a  simple  and  fundamental  proposi- 
tion: "No  one  ever  spends  anything  without  making  someone  else 
work  for  him.  No  one  ever  spends  anything  without  making  someone, 
somewhere,  somehow,  work  for  him.  Just  now  in  the  present  emer- 
gency every  time  the  individual  spends  money  for  something  he  does 
not  need  he  deprives  the  government  of  something,  some  goods  or 
some  services,  that  it  needs  to  fight  the  enemy.  That  is  the  lesson 
that  the  War  Savings  Committee  have  worked  to  bring  home  to  every 
family  in  England,  and  their  efforts  have  been  rewarded  with  a  very 
large  measure  of  success. 

A  direct  result  of  that  lesson  was  what  Mr.  Blackett  well  refers 
to  as  the  gospel  of  goods  and  services.  We  hear  a  great  deal  of  talk, 
about  wars  being  fought  with  money.  Wars  are  not  fought  with 
money.  Wars  are  fought  with  goods  and  services.  When  fought  by 
a  nation  which  has  been  organized  almost  entirely  for  peace,  wars  are 
fought  by  services  rendered  and  goods  produced,  in  very  large  measure, 
during  the  war.  That  is  what  is  known  as  the  gospel  of  goods  and 
services. 

They  speak  of  it  as  a  gospel  because  the  doctrine  has  been  spread 
with  something  of  the  enthusiasm  which  accompanies  religious  move- 
ments. It  means  simply  this,  that  at  a  time  when  a  government  is 
demanding  more  goods  and  more  services  than  the  country  can 
produce,  those  who  are  requiring  unessential  goods  and  services  for 
personal  use  are  doing  a  direct  harm  to  the  government  by  their 
competition  with  it.  It  makes  no  difference  whether  a  man  or  a 
woman  or  a  child  can  afford  to  command  goods  or  services  or  not; 


WAR  FINANCE  435 

the  nation  cannot  afford  to  have  the  individual  command  goods  and 
services  for  nonessentials  when  goods  and  services  are  required  at 
the  point  of  contact  with  the  enemy,  and  required  before  they  are 
too  late. 

The  war  savings  campaign,  which  will  grow  stronger  and  stronger 
as  the  war  goes  on,  means  much  more  than  a  direct  money  contribu- 
tion to  the  prosecution  of  the  war.  The  saving  of  money  is  not  of  the 
greatest  importance.  The  saving  of  money  is  a  means  to  an  end. 
The  world  must  save  the  things  that  money  stands  for:  goods  and 
services.  The  world  must  save  capital  and  labor.  When  the  people 
of  this  country  get  the  habit  of  thinking  in  terms  of  goods  and  services 
instead  of  in  terms  of  money  the  government's  task  of  carrying  on 
the  war  will  be  rendered  much  easier.  Moreover,  the  results  of  that 
thinking  will  surely  continue  after  the  war.  Surely  the  new  ideals, 
the  new  habits  of  living,  which  we  shall  have  acquired  will  contribute 
their  full  measure  of  strength  to  the  rebuilding  and  the  upbuilding 
of  things  and  of  men  in  the  days  of  peace  that  are  to  come. 

LI.    The  War  Finance  Corporation 

i.    REASONS  FOR  ORGANIZATION  OF  THE  WAR  FINANCE 
CORPORATION1 

Just  at  the  close  of  January  the  Secretary  of  the  Treasury 
announced  a  project  for  the  establishment  of  a  so-call'ed  "  War  Finance 
Corporation"  designed  to  support  and  confirm  banking  and  industrial 
credit.  On  February  9  he  appeared  before  the  Senate  Finance 
Committee  for  the  purpose  of  advocating  the  adoption,  of  the  plan 
in  a  definite  form.  The  proposed  measure  is  intended  to  meet  the 
conditions  produced  by  the  decline  of  securities  and  the  possible  effect 
of  withdrawals  of  funds  from  savings  banks  unable  to  liquidate  their 
long-term  investments. 

The  government's  borrowings,  particularly  during  the  period 
immediately  preceding  and  following  each  Liberty  Loan,  have  tended 
to  pre-empt  the  credit  facilities  of  the  banks  and  often  to  prevent 
them  from  giving  needed  and  customary  help  to  quasi-public  and 
private  enterprises.  In  not  a  few  cases  some  such  enterprises  engaged 
in  work  more  or  less  directly  essential  to  the  war  have  been  prevented 
from  obtaining  the  advances  necessary  to  enable  them  to  perform 

1  Adapted  from  "Washington  Notes,"  Journal  of  Political  Economy,  XXVI 
(February  and  April,  1918),  206,  409-10. 


436  ECONOMICS  OF  WAR 

essential  service  because  bank  credits  ordinarily  available  are  being 
absorbed  by  the  government  itself. 

To  accomplish  these  ends  there  is  planned  a  corporation  with  a 
capital  of  $500,000,000  subscribed  by  the  government  and  authorized 
to  issue  its  own  obligations  to  eight  times  that  amount,  or  $4,000,- 
000,000.  These  obligations  might  be  issued  to  any  one  or  all  of  three 
classes  of  borrowers:  (i)  to  banks  which  have  made  advances  to,  or 
become  purchasers  of,  the  paper  or  obligations  of  enterprises  deemed 
essential  or  contributory  to  success  in  war;  (2)  to  savings  banks 
requiring  assistance;  and  (3)  in  exceptional  cases  directly  to  enter- 
prises which  are  engaged  in  war  work.  Notes  issued  by  the  concern 
would  be  given  to  such  banks  or  private  undertakings  against  the 
latter's  own  obligations  secured  as  circumstances  might  permit. 

The  War  Finance  Corporation  bill,  which  passed  the  House  of 
Representatives  on  March  21,  was  signed  by  the  President  on  April 
5,  and  thus  becomes  law.  In  a  number  of  respects  it  has  been  sub- 
jected to  important  modifications  since  its  first  introduction  in 
Congress.  One  which  is  of  most  importance  to  the  Federal  Reserve 
System  is  found  in  the  provision  relating  to  the  conditions  under  which 
paper  collateraled  by  obligations  of  the  War  Finance  Corporation 
may  be  admitted  to  discount  at  Federal  Reserve  banks.  In  effect, 
what  has  been  done  by  the  legislators  has  been  to  apply  two  methods 
of  restriction  or  regulation,  the  one  seeking  to  make  plain  the  fact 
that  short-term  commercial  paper  is  still  to  have  the  preferred  position 
at  Federal  Reserve  banks,  the  obligations  of  the  War  Finance  Cor- 
poration being  given  a  secondary  status  by  the  establishment  of  a 
differential  rate  of  i  per  cent  against  them;  the  other  being  the  limita- 
tion of  War  Finance  discounts  to  those  cases  in  which  a  bank  present- 
ing such  paper  is  able  to  state  that  it  is  not  possessed  of  commercial 
paper  available  for  use  as  a  basis  for  rediscount. 

The  obligations  of  the  War  Finance  Corporation  are  necessarily  of 
a  nature  intended  for  investment  rather  than  for  banking  uses,  and 
the  opening  of  Federal  Reserve  banks  to  them  must  consequently  be 
regarded  merely  as  a  provision  designed  to  strengthen  their  technical 
position  and  to  set  at  rest  the  attitude  of  the  government  with  respect 
to  them  rather  than  a  provision  adopted  in  the  expectation  that  any 
considerable  volume  of  business  in  such  paper  would  actually  be 
undertaken  by  Federal  Reserve  banks.  Assuming  that  they  are  thus 
in  effect  an  emergency  resource,  it  is  not  to  be  expected  that  they  would 
come  in  large  volume  to  Federal  Reserve  banks,  and  it  is  to  be  hoped 


WAR  FINANCE  437 

that  they  would  not  find  a  permanent  lodgment  in  any  considerable 
quantities  in  the  banks  in  general.  Among  the  provisions  now  incor- 
porated in  the  final  draft  of  the  War  Finance  Corporation  measure  is 
one  which  removed  the  power  granted  by  the  original  bill  to  Federal 
Reserve  banks  to  undertake  open-market  operations  in  the  securities 
of  the  War  Finance  Corporation.  Such  advances  as  they  make  on 
the  securities  of  this  corporation  must  now,  therefore,  be  dependent 
upon  the  application  and  indorsement  of  a  member  bank — a  situation 
which  merely  limits  the  possibility  of  operations  designed  purely  to 
aid  the  market. 

The  powers  of  the  War  Finance  Corporation  remain  very  large, 
and  the  connection  between  it  and  the  Federal  Reserve  System  is  close 
enough  to  permit,  theoretically  at  least,  a  very  considerable  draft  to  be 
made  upon  the  Federal  Reserve  banks  unless  the  new  corporation  is 
conducted  with  great  care  and  conservatism. 

2.    WAR  FINANCE  CORPORATION  UNIMPORTANT1 

The  War  Finance  Corporation  is  organized  and  ready  to  do  busi- 
ness, but  a  serious  difficulty  has  been  encountered  in  dealing  with 
the  class  of  cases  for  which  it  seems  to  have  been  chiefly  designed, 
which  consists  of  corporations  in  need  of  capital  either  for  refunding  or 
expansion  purposes.  It  had  been  assumed  bankers  would  provide 
the  capital  wanted  in  such  instances  and  then  recoup  themselves  by 
borrowing  upon  their  own  notes  through  the  War  Finance  Corpora- 
tion, which,  above  its  own  capital  of  $500,000,000,  would  obtain 
credit  at  the  Federal  Reserve  banks.  But  it  develops,  as  might  have 
been  foreseen,  that  bankers  are  unwilling  to  expand  their  liabilities 
in  this  manner.  Commercial  bankers  would  be  outside  their  proper 
field  of  operations  in  lending  their  credit  for  the  purpose  of  providing 
fixed  capital,  and  investment  bankers  would  find  the  policy  equally 
impracticable.  Their  business  is  not  to  carry  investments  but  to 
distribute  them,  and  they  need  to  have  their  capital  in  hand. 

The  fact  is  that  loans  of  the  character  contemplated  do  not  belong 
in  commercial  banks  or  in  the  reserve  banks,  and  it  was  a  mistake  to 
plan  for  the  handling  of  them  through  this  channel.  They  should 
go  to  the  investment  market,  and  if  they  cannot  stand  alone  there 
have  such  help  as  may  be  necessary  from  the  War  Finance  Corpora- 
tion or  the  government.  It  is  true  that  the  government  does  not  like 

1  From  monthly  bulletin  of  National  City  Bank,  New  York,  July,  1918. 


438  ECONOMICS  OF  WAR 

to  divide  the  public  market  at  this  time  with  other  applicants  for 
capital  and  should  not  do  so  except  as  the  services  of  other  applicants 
are  of  public  importance;  but  if  their  services  are  indispensable  and 
their  needs  imperative,  there  is  no  escape  from  it,  and  it  is  useless  to 
camouflage  the  situation  by  throwing  them  upon  .the  reserve  banks. 
The  largest  of  these  demands  are  for  refunding  purposes,  and  these 
do  not  reduce  the  supply  of  capital  on  the  market.  Now  that  the 
government,  through  its  control  not  only  of  flotations  but  of  the  indus- 
tries, virtually  has  control  over  the  capital  reservoir,  it  loses  practically 
nothing  by  allowing  refunding  offerings  to  go  to  the  public,  and  their 
success  is  mainly  a  question  of  terms. 

Presumably  the  public-utility  companies  can  handle  themselves 
by  meeting  market  conditions  if  their  credit  is  supported  by  fair 
treatment  on  the  part  of  the  communities  in  which  they  are  located. 
It  is  perfectly  evident  that  the  public  utilities  are  in  a  hard  situation, 
with  their  income  restricted  by  fixed  rates  of  compensation  and  their 
expenses  increasing  under  war  conditions.  The  situation  is  so  plain 
that  the  public  should  not  hesitate  to  meet  it.  Since  the  federal 
government  has  become  responsible  for  railroad  earnings  it  has  been 
prompt  to  recognize  the  necessities  and  to  safeguard  itself  with  a 
liberal  margin  to  spare.  The  example  should  be  adopted  by  munici- 
palities to  the  extent  of  allowing  a  fair  readjustment  of  earnings  to 
expenditures.  If,  beyond  doing  this,  something  more  is  necessary  in 
some  instances,  the  capital  and  credit  of  the  War  Finance  Corporation 
may  be  properly  used. 


XI 
PRICES  AND  PRICE  CONTROL 

Introduction 

The  subject  of  price  levels  and  their  movements  is  a  particularly 
fruitful  field  for  economic  fallacies,  because  it  is  so  easy  to  think  of 
the  problem  in  terms  of  prices  alone,  whereas  the  fundamental  facts 
are  the  volume  of  production  of  commodities  and  the  sharing  of  those 
commodities  among  the  people.  Prices  are  only  an  instrument  in 
bringing  this  about.  Now  a  shortage  of  production  cannot  be  turned 
into  prosperity  for  producers  in  general  (including  wage  earners  and 
lenders)  by  freedom  to  raise  prices,  and,  on  the  other  hand,  the  con- 
sumer cannot  be  saved  from  all  the  effects  of  a  shortage  merely  by 
keeping  prices  down.  A  revolution  in  prices  does  mean  increasing 
the  cost  of  the  war,  as  the  report  of  the  British  Committee  indicates 
(Section  LVII),  and  injustice  between  classes,  as  is  shown  in  the 
reading  on  "The  Necessity  for  Price  Control."  It  also  makes 
necessary  a  general  raising  of  wages,  and  this  means  friction,  strikes, 
and  the  stoppage  of  work. 

It  is  becoming  the  fashion  to  say  that  in  controlling  prices  the 
government  is  "repealing  ,the  law  of  supply  and  demand" — this 
statement  being  probably  most  often  made  by  persons  who  would 
have  some  trouble  in  stating  accurately  just  what  the  law  of  supply  and 
demand  is.  It  is  true  that  prices  are  fixed  at  different  levels  from 
those  which  would  have  resulted  from  leaving  supply  and  demand  un- 
controlled by  anything  save  the  prices  that  free  bargaining  would  fix, 
but  it  is  not  true  that  prices  can  be  fixed  without  any  reference  to  the 
necessity  of  making  supply  and  demand  equal.  If  prices  are  to  be 
kept  down,  it  can  only  be  by  furnishing  some  other  method  than  that 
furnished  by  high  prices  for  stimulating  supply  and  for  apportioning 
the  shortage.  The  attempts  of  government  to  influence  prices  act 
within  limits,  as  Mr.  Sidney  Webb  (selection  LIII,  3)  indicates, 
and  these  limits  are  set  by  their  ability  to  stimulate  production 
and  cut  down  consumption  in  other  ways  than  by  raising  prices 
(selection  LV,  i).  In  time  of  war,  patriotism  has  great  power  for  both 
purposes.  The  Food  Administration  has  enlisted  both  producers  and 

439 


440  ECONOMICS  OF  WAR 

consumers  as  members,  pledged  to  co-operate  in  its  policy.  However, 
the  control  of  the  consumer  can  be  made  more  drastic  and  certain  by 
working  through  the  producer,  and  our  typical  policy  seems  to  be  to 
put  the  producer  on  rations,  so  to  speak,  and  let  him  satisfy  his  cus- 
tomers as  best  he  may.  If  his  prices  are  kept  down,  he  will  have 
to  face  an  excess  of  demand  over  supply,  and  must  handle  it  as  best 
he  can. 

There  are  almost  as  many  kinds  of  price-fixing  as  there  are  com- 
modities. The  mere  letting  of  government  contracts  controls  prices, 
and  the  concentrated  buying  for  our  Allies  controls  them  more  power- 
fully. There  is  control  by  agreement  as  in  the  case  of  metal,  control 
by  legislation  as  in  the  case  of  wheat  (backed  by  the  power  to  pur- 
chase), control  by  executive  order  as  in  the  case  of  coal,  control  by 
arbitration  as  in  the  case  of  milk,  and  there  is  control  of  prices  through 
control  of  profits  as  in  the  case  of  meat  packers,  flour  millers,  and 
dealers  in  general.  There  are  guaranteed  minimum  prices  to  stimulate 
production,  and  maximum  prices  to  protect  consumers.  Control  of 
profits  takes  as  its  standard  a  margin  of  so  much  per  barrel  for  flour, 
a  percentage  return  on  capital  or  on  sales  for  meat  packers,  or  the 
pre-war  level  for  dealers  in  many  essential  commodities.  Each  of 
these  policies  is  different  from  the  others  in  its  possible  effects.  If 
one  price  is  fixed,  it  must  be  high  enough  to  pay  the  "marginal" 
producer,  and  thus  yield  high  profits  to  those  who  have  advantages 
of  one  sort  or  another  (selection  LIV,  i);  but  in  the  case  of  coal 
the  favored  producers  are  forced  to  share  their  gains  with  the  con- 
sumer, even  though  this  means  selling  better  coal  at  a  lower  price  in 
the  same  market.  (See  Van  Hise,  Some  Cases  of  Price  Control.} 
Similarly,  dealers  in  food  stuffs  who  had  bought  at  low  prices  have 
been  forced  to  sell  cheaper  than  their  competitors  who  had  bought 
the  same  commodity  at  a  different  time  and  at  a  higher  price.  This 
policy  is  possible,  as  Van  Hise  points  out,  because  the  demand  is 
strong  enough  to  take  the  whole  supply  at  the  highest  prices,  so  that 
consumers  who  get  lower  prices  are  favored,  as  they  would  not  be  in  an 
open  market,  by  being  presented  with  a  share  of  the  "producers' 
surplus." 

Many  knotty  questions  are  raised.  What  is  a  farmer's  invest- 
ment in  his  land,  and  what  is  a  fair  return  on  it  ?  If  the  land  is  taken 
at  its  present  market  value,  should  the  farmer  get  5  per  cent  on  that 
value,  if  the  farming  class  have  for  years  bought  land  at  prices  as 
high  as  thirty  times  the  worth  of  the  yearly  net  income  from  it? 


PRICES  AND  PRICE  CONTROL  441 

This  seems  obviously  fair  to  many  people,  but  it  would  lead  to  an 
endless  spiral  of  rising  prices.  If  a  piece  of  land  yields  $1,000  and 
is  worth  $30,000,  its  owner  could  demand  an  increase  in  prices  that 
would  net  him  $1,500.  After  he  had  got  this  increase,  his  land  would 
sell  for  $45,000  and  his  next  season's  demand,  would  be  for  prices 
that  would  net  him  $2,250,  after  which  the  price  of  his  land  would 
rise  again,  and  so  on.  Other  problems  arise  in  calculating  investment 
and  profits  and  in  standardizing  products.  The  rules  on  these 
matters,  which  the  readings  contain,  are  but  faint  foreshadowings  of 
what  would  be  necessary  if  price  control  were  to  be  general  and  per- 
manent. In  taking  the  producers'  books  as  they  stand  there  is 
injustice,  because  accounting  practice  differs  from  one  producer  to 
another,  and  a  uniform  accounting  system  must  be  prescribed  if 
this  sort  of  unfairness  is  to  be  prevented. 

In  general  the  control  of  prices  in  war  differs  radically  from  the 
price  control  of  peace  times,  particularly  in  America,  and  methods 
have  been  used  which  would  seem  like  intolerably  rough-and-ready 
makeshifts  to  one  trained  in  the  circumspect  procedure  of  our  courts 
and  commissions.  For  one  thing,  war-time  control  of  temporary 
competitive  gains  due  to  shortage  does  not  attempt  to  cut  margins 
of  profit  nearly  so  fine  as  peace-time  control  of  the  more  permanent 
and  relatively  safe  gains  due  to  a  natural  monopoly.  The  willing- 
ness of  producers  to  co-operate  has  possibly  enabled  the  government 
to  get  results  by  methods  that  could  not  be  used  permanently. 
But,  on  the  other  hand,  it  is  also  possible  that  something  of  the  free- 
dom and  "get- there"  quality  of  war-time  regulation  may  remain  to 
color  the  policies  of  the  future.  The  ultimate  outcome  will  doubt- 
less be  determined,  as  the  war  policy  has  been,  by  experimenting  and 
by  meeting  the  problems  of  the  future  as  they  arise. 

III.    The  Revolution  in  Prices 
i.    THE  RISING  PRICE  LEVEL1 

Some  idea  of  the  shrinkage  of  the  dollar  since  the  coming  of  the 
war  can  be  got  from  the  index-number  of  wholesale  prices  published 
by  the  U.S.  Bureau  of  Labor  Statistics  (July,  1918).  The  commodi- 
ties covered  are  grouped  into  farm  products,  food,  clothing,  fuel  and 
light,  metals  and  metal  products,  building  materials,  chemicals  and 

1  An  editorial.  • 


442 


ECONOMICS  OF  WAR 


drugs,  furniture   and   house   furnishings,  and   miscellaneous.     The 
percentage  in  average  price-increase  since  1913  is  as  follows: 


1913 

1914 

1915 

1916 

1917 

IQlS 

Jan. 

Feb. 

Mar. 

IOO 

99 

IOO 

123 

175 

I8S 

187 

187* 

*  Based  on  preliminary  figures. 

2.    FUNDAMENTAL  CAUSES  AND  EFFECTS 
OF  THE  RISE1 

The  gradual  growth  in  the  expenditure  upon  the  war  is  due,  not 
only  to  new  services  and  increased  demands,  but  also,  in  no  small 
degree,  to  the  increase  in  prices.  It  may  be  calculated  very  roughly 
that  an  all-around  increase  of  10  per  cent  in  wages  and  in  the  cost  of 
commodities  purchased  at  home  now  involves  an  increase  in  the 
national  expenditure  of  about  130,000,000  pounds  a  year. 

Your  committee  have  consequently  found  themselves  obliged  to 
extend  their  inquiry  into  the  causes  of  the  increase  in  prices  and  the 
possible  checks  that  may  be  applied. 

The  chief  causes  are:  The  expansion  of  credits  during  the  war; 
the  demand  for  commodities  exceeding  the  supply  and  the  inade- 
quacy of  Government  action  to  control  prices;  increases  of  wages  and 
consequent  increase  in  the  cost  of  production;  increases  in  the  rates  of 
profit;  unfavorable  rates  of  exchange  in  some  countries  from  which 
supplies  are  imported. 

Some  of  these  are  at  once  effects  of  the  increase  of  prices  and  causes 
of  further  increases.  It  would  be  difficult,  and  it  is  also  unnecessary, 
to  determine  what  is  the  order  of  importance  of  these  various  factors. 
But  it  is  certain  that  among  the  most  important  is  the  expansion  of 
credits.  The  responsibility  for  the  rise  of  prices,  so  far  as  it  is  due  to 
this  cause,  rests  partly  with  the  Government  and  partly  with  the  pub- 
lic. There  have  indeed  been  very  large  increases  in  taxation,  and 
vast  loans  have  been  raised  from  the  savings  of  the  people.  But  to 
the  extent  to  which  this  policy  has  not  been  pursued  and  instead  fresh 
credits  have  been  created,  the  Government  has  given  the  power  to 


1  From  a  report  made  by  a  select  committee  of  the  British  House  of  Com- 
mons, reported  in  the  Economic  World  (March  30,  1918),  p.  441. 


PRICES  AND  PRICE  CONTROL  443 

the  public  to  spend  more  freely  on  things,  instead  of  investing  in 
Government  securities,  raises  prices  against  itself.1 

Demands  from  the  working  classes  for  war  bonuses  or  wage 
increases  are  based,  as  a  rule,  on  one  or  more  of  the  following  grounds : 

a)  The  cost  of  living  has  increased  and  wages  must  be  increased 
also  in  order  to  enable  the  working-class  family  to  pay  its  way. 

b)  The  employing  class  is  making  large  profits  out  of  the  war, 
and  so  long  as  they  do  so,  it  is  legitimate  that  the  working  classes 
should  do  the  same. 

c)  The  demand  for  labor  exceeds  the  supply,  and  it  is  inevitable 
therefore  that  wages  should  rise. 

d)  The  worker's  output  has  been  increased,  and  he  is  entitled  to  a 
higher  wage  in  consequence. 

e)  Increases  have  been  given  in  one  industry  or  in  one  grade,  and, 
in  order  .to  prevent  inequality  or  unfairness,  increases  must  follow  in 
other  industries  or  grades  as  well. 

We  shall  examine  each  of  these  points  in  turn. 

It  is  generally  agreed  that  with  the  great  increase  in  the  cost  of 
living  which  has  taken  place  during  the  war — whatever  may  be  its 
causes— it  would  have  been- neither  just  nor  practicable  to  have  kept 
wages  at  their  pre-war  level.  We  have  formed  no  estimate  of  the 
extent  of  the  rise  of  wages  which  has  taken  place,  nor  its  relation  to  the 
increased  cost  of  living.  The  rise  has  not  been  equally  distributed, 
and  to  arrive  at  the  facts  would  have  involved  a  prolonged  and  detailed 
inquiry  into  the  movement  of  wages  in  all  the  industries,  and  in  all 
the  grades  of  labor  in  each  industry  throughout  the  country.  We 
therefore  express  no  opinion  on  these  points.  Moreover,  on  the 
other  side  of  the  account,  the  extent  to  which  the  cost  of  living  has  in 
fact  increased  does  not  appear  to  have  been  ascertained  with  any 
certainty. 

Increases  of  wages  have  in  some  cases  been  secured  apart  from 
any  question  of  the  cost  of  living  through  advantage  being  taken  of 
the  shortage  of  labor  supply  in  relation  to  the  demand.  However 
legitimate  this  may  be  in  time  of  peace,  it  should  be  remembered 
that  in  existing  circumstances  it  is  a  direct  cause  of  further  rises  in 
prices,  and  of  further  increases  in  national  expenditure.  At  the  same 
time,  it  is  essential  that  if  labor  is  asked  to  forego  the  advantages  of 
its  economic  position  from  motives  of  patriotism,  the  same  measure 
should  be  effectively  applied  to  capital. 

1  ED.  NOTE— Cf.  selection  XLVIII,  3. 


444  ECONOMICS  OF  WAR 

So  far  as  increased  earnings  follow  increased  output  due  to 
greater  effort  or  skill,  they  do  not  involve  increase  in  the  cost  of 
production  or  in  prices,  though  they  would  have  the  effect  of  pre- 
venting a  reduction. 

It  is  the  case  that  increases  of  wages  in  one  trade  or  grade  have 
been  used  as  a  reason  for  further  increase  in  others,  on  the  ground  of 
similarity,  and  apart  from  questions  of  cost  of  living.  Hitherto 
there  has  been  no  effective  check  on  this  competition.  Several  dif- 
ferent authorities  have  been  dealing  with  wage  questions  in  different 
industries  independently  of  one  another,  although  it  has  been  obvious 
that  the  course  taken  by  any  one  of  them  must  tend  to  be  used  as  a 
precedent  for  the  rest.  We  find,  indeed,  that  there  is  frequently 
wanting  a  proper  co-operation  between  Government  departments  in 
dealing  with  labor,  which  sometimes  passes  into  active  competition. 

Fresh  cycles  of  wage  advances  succeed  one  another.  Each  one 
results  in  further  increases  of  prices  or  in  preventing  a  reduction  of 
prices.  An  individual  trade  may  obtain,  by  a  wage  advance,  tempo- 
rary relief  from  the  increase  in  the  cost  of  living,  but  only,  as  a  rule,  at 
the  expense  of  all  other  trades.  And  the  gain  is  short-lived,  for  the 
result  is  a  demand  from  the  others  for  similar  advances,  which  raise 
the  cost  of  the  commodities  which  they  produce  also.  The  producers 
are  raising  prices  against  themselves  as  consumers.  Meantime  the 
cost  of  the  war  is  vastly  increased.  We  are  deeply  impressed  by  the 
seriousness  of  the  position  in  this  respect,  and  are  convinced  that  if 
the  process  continues  the  result  can  hardly  fail  to  be  disastrous  to  all 
classes  of  the  nation. 

Our  recommendations  in  respect  to  those  aspects  of  the  question 
of  prices  which  are  dealt  with  in  this  report  are  as  follows : 

1.  Whatever   measures   are  possible   should   be   taken   by   the 
Government  to  avoid  the  creation  of  new  credits  in  financing  the  war. 

2.  An  inquiry  should  be  set  on  foot  to  ascertain  what  has  been 
the  actual  increase  in  the  cost  of  living  to  the  working  classes,  and 
how  far  it  has  been  counterbalanced  by  advantages  apart  from  wage 
advances  due  to  war  conditions. 

3.  The  measures  for  the  limitation  of  profits  should  be  continued 
and  strengthened,  and  should  be  made  more  widely  known  to  the 
people. 

4.  The  strongest  case  should  be  required  to  be  established  before 
any  advance  of  wages  is  conceded  on  any  ground  other  than  the 
rise  in  the  cost  of  living.     Nor  should  it  be  regarded  as  a  rule — and  we 


PRICES  AND  PRICE  CONTROL  *  445 

have  no  reason  to  think  that  labor  in  general  desires  that  it  should — 
that  wage  earners,  in  receipt  of  not  inadequate  pay  before  the  war, 
should  be  exempted  from  all  share  in  the  economic  sacrifices  involved 
by  a  state  of  war. 

5.  A  single  policy  under  the  general  direction  of  one  authority 
should  be  adopted  in  all  industries  in  the  determination  of  wage 
questions. 

3.    AGGRAVATING  FACTORS1 

The  causes  of  mounting  prices. — The  fundamental  cause  of  the 
mounting  prices  is  that  which  has  already  been  explained,  an  unusual 
and  extraordinary  demand  from  abroad  for  all  essential  commodities. 
However,  this  has  been  only  one  factor  in  the  process. 

When  it  was  once  appreciated  that  there  was  a  relative  shortage 
of  the  essential  commodities,  the  home  purchasers,  instead  of  buying 
ordinary  amounts,  purchased  in  advance  of  their  needs.  Thus  the 
family,  instead  of  buying  flour  by  the  sack,  bought  a  number  of  bar- 
rels, or,  in  some  cases,  bought  flour  for  years  ahead.  The  same  is  true 
in  regard  to  sugar.  Similarly  during  the  spring  and  summer  of  1917, 
when  it  was  appreciated  that  there  was  a  shortage  in  coal,  many 
manufacturers  were  trying  to  protect  their  businesses  by  accumulating 
reserves  to  carry  them  through  the  winter.  The  same  was  true  of 
those  who  desired  coal  for  heat.  The  consequence  was  that  the 
demands  of  purchasers  were  far  beyond  what  would  have  been  neces- 
sary to  meet  actual  needs  had  the  ordinary  procedure  been  followed. 
This  frenzy  of  excessive  buying  has  greatly  aggravated  the  situation. 

Another  most  important  cause  of  the  enhancing  prices  was  that 
a  time  when  there  is  great  demand  is  especially  advantageous  for 
speculators  to  accumulate  great  stores  of  goods  of  various  kinds  and 
hold  them  for  advances  in  prices.  This  was  done  on  a  great  scale 
throughout  the  country  for  every  essential  commodity. 

Finally,  when  the  conditions  are  as  above,  it  is  especially  easy  for 
those  in  a  given  line  of  business  at  a  particular  locality  to  co-operate 
to  push  prices  upward  and  thus  greatly  increase  the  profits  of  their 
business.  This  also  was  done  on  a  vast  scale  for  many  commodities. 

Based  upon  the  first  factor,  the  second,  third,  and  fourth  factors 
have  come  in,  each  with  reinforcing  power,  to  accelerate  prices. 

1  By  Charles  R.  Van  Hise.  Adapted  from  Conservation  and  Regulation  in  the 
United  States  during  the  World  War,  p.  33. 

ED.  NOTE.— Charles  R.  Van  Hise  is  president  of  the  University  of  Wisconsin. 


446  ECONOMICS  OF  WAR 

The  tendencies  above  described,  once  started,  are  cumulative,  and 
the  enhancement  of  prices  goes  on  with  increasing  velocity.  The 
prices  of  foods  are  advanced;  the  employees  must  have  higher  pay 
because  of  the  increased  dost  of  food;  the  raw  materials  for  manu- 
factured articles  are  advanced;  the  manufacturer  charges  a  higher 
price  for  his  articles  because  he  must  pay  more  for  his  labor  and  an 
increased  price  for  his  raw  materials.  The  cycle  thus  completed  is 
begun  again  with  food,  and  so  on  indefinitely,  with  the  result  that 
prices  have  been  and  still  are  rising  beyond  all  reason,  like  a  spiral 
ascending  to  the  sky. 

4.     INCREASING  PAY  TO  BALANCE  INCREASED  PRICES1 

The  committee  recently  appointed  to  make  a  further  investigation 
of  increased  living  costs  established  a  basis  for  its  report  by  deter- 
mining: 

1.  The  percentage  of  various  annual  salaries  expended  as  of  the 
year  1915  for  food,  clothing,  and  rent. 

2.  The  percentage  of  increase  in  average  price  of  these  items 
during  the  last  six  months  of  the  present  calendar  year  over  the 
calendar  year  1915. 

i  Increased  living  costs  have  been  mostly  evidenced  in  the  price 
of  food  and  clothing.  Carfare,  insurance,  light,  etc.,  have  not  as  yet 
reflected  any  noticeable  increase,  and  rent  to  only  a  relatively  small 
degree. 

The  average  index  number  as  established  by  the  committee  for  the 
six  months  ending  December  31,  1917  (December  estimated),  shows 
an  increase  of  86 . 2  per  cent  over  the  average  index  number  for  the 
calendar  year  1915.  The  committee  has  been  at  some  pains  to  sub- 
stantiate these  findings. 

The  committee  has  throughout  its  considerations  attempted  to 
arrive  at  a  conclusion  which  would  conservatively,  rather  than 
liberally,  compensate  for  the  actual  increase  in  living  costs.  Chapin's 
table  was  accepted  with  but  minor  adjustments.  It  represents 
workingmen's  living  standards,  which  are  admittedly  lower  than 
those  which  must  be  maintained  by  the  bank  clerk.  The  85  per  cent 
increase  in  food  and  clothing  prices  is  considered  equitable,  but  con- 
servatism has  prompted  that  a  flat  80  .per  cent  increase  in  these 
items  be  accepted  as  a  basis  of  compensation  at  this  time.  The 
80  per  cent  increase  in  food  and  clothing  prices,  of  course,  applies 

1  Adapted  from  reports  of  committee  of  Bankers'  Trust  Company,  New  York. 


PRICES  AND  PRICE  CONTROL  447 

only  to  those  who  have  been  continuously  in  the  employ  of  the  com- 
pany since  June  30,  1916,  when  living  costs  first  showed  a  material 
advance.  The  basis  of  compensation  for  employees  engaged  after 
June  30,  1916,  is  determined  upon  the  percentage  increase  in  clothing 
and  food  prices  as  indicated  by  the  average  index  number  for  the 
month  in  which  the  employee  is  engaged  in  relation  to  the  average 
index  figure  for  the  six  months  to  be  compensated  for.  The  basis  is 
detailed  in  Schedule  "H."  An  increase  of  10  per  cent  over  1915  has 
been  considered  equitable  to  compensate  for  increased  rentals,  includ- 
ing fuel. 

The  committee  recommends  that  compensation  for  the  six  months 
ended  December  31, 1917,  be  distributed  in  a  lump  sum  on  the  basis  of 
the  above  findings.1 

The  abnormal  upward  trend  of  prices,2  both  wholesale  and  retail, 
in  recent  months  has  indicated  the  probability  that  wholesale  prices 
increase  more  rapidly  in  a  period  of  expansion  than  do  retail  prices. 
Presumably,  the  retailer  purchases  some  months  in  advance  of  his 
requirement  for  goods,  and  at  prices  then  prevailing.  The  com- 
mittee is  persuaded  that  at  present  considerable  divergence  would  be 
found  if  an  actual  increase  in  wholesale  and  retail  prices  could  be 
determined.  The  percentage  increase  found  by  the  committee  in  its 
last  report  (covering  the  six-months  period  July-December,  1917) 
was  reduced  6  per  cent  in  consideration  of  the  probability  of  such 
divergence. 

It  seems  evident  that  the  causes  which  have  resulted  in  price  in- 
creases already  realized  will  be  intensified  if  present  requirement  for 
war  products  continues.  The  committee  questions  if  Bankers' 
Trust  Company,  which  cannot  in  these  times  be  assured  of  profits 
commensurate  with  the  decrease  in  the  purchasing  power  of  money, 
should,  in  equity,  continue  a  policy  which,  for  the  duration  of  the  war, 
would  relieve  its  employees  in  every  instance  entirely  from  the  com- 
mon duty  of  retrenchment  and  reduced  uses  of  essentials,  which  should 
now  be  a  voluntary  and  willing  sacrifice  by  all. 

The  modified  basis  of  extra  remuneration  here  recommended  is 
calculated  to  meet  the  foregoing  considerations.  Distribution  is 
calculated  upon  a  60  per  cent  increase  in  retail  cost  of  food  and  clothing 

1  This  is  from  a  report  of  December  15,  1917. 

2  From  Compensation  for  Increased  Living  Costs,  report  of  committee  covering 
the  six-months  period  ending  June  30,  1918. 


448  ECONOMICS  OF  WAR 

and  a  10  per  cent  increase  in  rentals.  The  60  per  cent  increase  in 
food  and  clothing  costs  was  arrived  at  by  careful  weighing  of  much 
independent  data  of  retail-price  changes,  by  examination  of  individual 
family  accounts,  and  by  comparison  of  wholesale  and  retail  prices  of 
many,  items  the  retail  cost  of  which  could  be  fairly  sustained. 

The  committee  recommends  that  those  in  receipt  of  salaries  of 
$1,100  to  $1,299  Per  annum  receive  the  highest  percentage  of  com- 
pensation, as  it  still  feels  that  this  class  carries  the  greatest  burden. 

The  following  abbreviated  table,  preferred  by  the  editors,  is  based 
on  the  two  reports  of  the  Bankers'  Trust  Company  committee,  from 
which  extracts  are  given  above,  and  indicates  the  methods  used  in 
calculating  compensation.  The  bonuses  apply  to  employees  hired 
before  July  i,  1916,  and  those  employed  later  receive  less,  on  a  gradu- 
ated scale.  The  reason  for  being  particularly  liberal  with  salaries 
from  $1,100  to  $1,299  seems  to  be  that  these  are  the  lowest  salaries 
paid  to  married  men  with  families  to  support.  Salaries  above  $2,500 
received  the  same  number  of  dollars  increase  as  those  of  $2,500. 


INCREASED  COST  OF 

«  w  > 

R  cf  ad 

s+ 

W  W_L 

>  o  ' 

g 

ESTIMATED  PER- 
CENTAGE OF  SALARY 
EXPENDED  FOR 

FOOD  AND  CLOTH- 
ING ABOVE  1913 
AVERAGE  PER- 

°<< 
a.  H) 
W  < 

W  >'-°i-i 

H  g 

2  a 

(0  H 

g 

a 

CENTAGE  OF 

Q 

I 

SALARY 

W  «  o  2 
ft  O1       5 

_  0-o 

55  w  O 
,_,   WCL,(_j 

W 

SALARY  BASIS 

,_,    X    M            I 

HH    Q  T  \ 
>-H    W1-1 

I—  I  PJ  y 
*~"*  r^l  ^ 

^  ^i^ 

IN  DOLLARS 

IV 

V 

_  o  •'u 

%      •> 

u  M 

Last  Half 

First  Half 

Q    m    ** 

H  3  ft  K 

«  ET;z 

O  W  <  ,, 
B  >  3  2 

Food  and 
Clothing 

III 
Rent 

of  1917, 
80%  of 
Column 

of  1918, 
60%  of 
Column 

w  z  «t§ 

J££2 

0  OU 

il 

II 

II* 

pt) 

|MOU 

H 

500-    599.  . 

57-4 

25 

45-92 

34-44 

2-5 

48.42 

36.94 

35-o 

1,100-1,199.  . 

60.5 

25 

48.4 

36-3 

2-5 

5°-9 

38.8 

40.0 

1,200-1,299.  . 

62.0 

24 

49.6 

37-2 

2-4 

52.0 

39-6 

40.0 

2,400-2,499.  . 

57-0 

20 

46.5 

34-2 

2.O 

47.6 

36.2 

30.6 

2.SOO.  . 

55-0 

2O 

44.0 

33-0 

2.0 

46.0 

35-o 

30.0 

*Reason  for  lowering  basis  from  80%  to  60%  is  given  in  report. 


LIII.    The  Need  for  Control 
i.    THE  NECESSITY  FOR  PRICE  CONTROL1 

The  conduct  of  war  on  an  extensive  scale  is  invariably  accom- 
panied by  a  rapid  rise  in  the  cost  of  living.  The  increase  in  prices  is 
not  confined  to  supplies  that  are  required  in  great  quantities  by  the 

1  By  Harold  G.  Moulton.  Adapted  from  "Some  Dangers  of  Price  Control," 
City  Club  [Chicago]  Bulletin,  September  10,  1917. 


PRICES  AND  PRICE  CONTROL  449 

armies  in  the  field;  it  seems  to  apply  with  more  or  less  severity  to  all 
classes  of  goods,  to  practically  everything  that  enters  into  the  general 
consumption  of  the  people.  The  high  cost  of  living,  therefore,  becomes 
one  of  the  most  acute  of  the  internal  problems  connected  with  war; 
and  the  regulation  of  prices  in  the  interests  of  the  masses  is  regarded 
as  one  of  the  most  important  duties  of  the  government. 

There  appear  to  be  two  lines  of  reasoning — perhaps  one  might 
better  say  two  sorts  of  reactions-^that  favor  government  control  of 
prices.  One  is  a  popular  argument  and  the  other  may  be  called  for 
want  of  a  better  term  a  "scientific"  argument.  In  the  view  of  the 
general  public  high  prices  in  war  time  are  in  considerable  measure 
the  result  of  manipulation  by  traitorous  malefactors  who  take  advan- 
tage of  the  government's  needs  and  the  public's  ignorance  and  lack 
of  organization — who  reap  where  they  have  not  sown,  who  make 
fortunes,  indeed,  without  rendering  any  equivalent  in  service  to 
society.  The  control  of  prices  in  the  interests  of  the  many  as  against 
the  machinations  of  the  few,  therefore,  makes  a  simple  and  elementary 
appeal  to  our  notions  of  right  and  wrong,  to  our  sense  of  plain  fairness 
and  justice. 

Closely  associated  with  this  reason  for  price  control  is  the  idea 
that  large  profits  should  not  be  permitted,  even  when  they  do  not 
result  from  manipulation,  monopolizing,  or  unfair  practices,  for  the 
simple  reason  that  it  is  unpatriotic  to  reap  advantage  in  any  way  from 
the  government's  needs.  "Profiteering"  becomes  in  war  time  a 
new  form  of  evil,  one  which  should  be  suppressed  with  a  strong  hand. 

The  more  carefully  reasoned  argument  for  price  control  recognizes 
that  the  causes  of  rising  prices  cannot  be  wholly  ascribed  to  the 
machinations  of  speculators,  traders,  middlemen,  and  monopolists,  or 
to  an  enormous  government  demand;  that  it  depends,  indeed,  mainly 
upon  fundamental  underlying  conditions,  upon  the  demand  for  and 
supply  of  commodities  in  general,  or,  as  some  would  prefer  to  put  it, 
upon  the  quantity  of  money  and  credit  available  for  purchasing  such 
goods.  But  the  "scientific"  argument  for  price  control  does  not 
depend  upon  the  causes  of  rising  prices;  it  merely  accepts  the  fact 
of  high  prices  and  uses  this  fact  as  a  point  of  departure.  The  real 
arguments  are :  First,  that  the  high  prices  which  the  government  has 
to  pay  for  the  materials  it  needs  greatly  increases  the  money  cost  of 
the  war  and  necessitates  a  heavier  burden  of  taxation  than  would 
otherwise  be  required.  Second,  the  high  prices  that  the  public  is 
compelled  to  pay  for  commodities  that  enter  into  general  consumption 


450  ECONOMICS  OF  WAR 

result  in  lowering  the  standard  of  living  of  the  masses,  in  consequence 
of  the  failure  of  wages  and  salaries  to  advance  with  equal  rapidity. 
This  loss  of  consuming  power  falls  with  unusual  severity  upon  people 
of  moderate  incomes,  upon  those  least  able  to  stand  the  burden,  and 
hence  is  one  of  the  most  important  of  the  indirect  burdens  of  war. 
Indirectly,  these  losses  may  be  regarded  as  costs  of  the  war,  costs  which 
fall  in  inverse  ratio  to  ability  to  pay,  thus  violating  the  most  funda- 
mental principle  of  just  taxation.  Price  control  is,  therefore,  a 
necessary  corrective  of  the  inequalities  of  war  burdens. 

Pushing  this  economic  argument  still  farther,  price  control  is 
necessary  in  order  to  prevent  the  poor  from  having  inadequate  con- 
sumption of  wealth.  The  masses  of  society  must  be  kept  above  the 
level  of  mere  subsistence,  in  order  that  all  may  be  physically  efficient 
and  mentally  alert  for  the  onerous  business  of  war.  Indeed,  when  a 
nation  is  pressed  to  the  wall  in  a  war  of  attrition,  price  control, 
together  with  a  distributive  dictatorship  for  the  necessities  of  life, 
becomes  an  indispenable  agency  for  equalizing  wealth,  for  parcelling 
out  the  national  store  of  goods  in  accordance  with  the  physical 
requirements  of  people,  rather  than  according  to  the  fatness  of  their 
respective  pocketbooks,  thereby  postponing  as  long  as  possible  the 
date  of  final  exhaustion. 

Finally,  price  control  has  its  political  purpose.  Just  distribution 
of  the  burdens  of  war  and  alleviation  of  the  economic  pressure  upon 
the  lower  classes  serves  to  suppress  the  rising  tide  of  discontent  and 
internal  dissension;  it  helps  to  maintain  a  united  front  and  to  buttress 
the  courage  of  all  classes  at  home;  while  at  the  same  time  it  affords 
small  comfort  or  hope  to  the  enemies  abroad.  In  a  prolonged  struggle 
it  is  indispensable  as  a  means  of  maintaining  the  morale  of  the  people. 

2.    WHERE  PRICES  ARE  UNCONTROLLED1 

LIST  OF  PRICES  PAID  IN  PETROGRAD 

Rubles 

Potatoes,  per  pood  (36  pounds) 150.00-  200.00 

White  flour,  per  pood 400.00-  500.  oo 

Black  bread  (privately),  per  pound. . . : 10.00-  12.00 

Eggs  (very  scarce),  per  piece i .  oo-  i .  20 

Salted  herrings,  per  piece 2 . 50-  3 .  oo 

1  ED.  NOTE. — From  a  letter  written  by  a  prominent  American  business  man 
from  Stockholm,  June  24,  1918.  A  ruble  is  equal  to  about  50  cents.  These 
prices  are  in  paper  money,  which  was  at  this  time  worth  about  10  cents  on  a 
dollar. 


PRICES  AND  PRICE  CONTROL  451 

LIST  OF  PRICES  PAID  IN  PETROGRAD — Continued 

Rubles 

Veal  (very  scarce),  per  pound 12. oo-     16 . oo 

Beef  (not  to  be  had  for  any  price) 

Sugar  (varies  greatly;  has  been  as  much  as  100  rubles 

per  pound)  now  per  pound 35 . oo-    45 . oo 

Lard  (comparatively  cheap),  per  pound 18. oo-    25 .00 

Butter  (comparatively  cheap),  per  pound 16.00-    20.00 

Milk  (very  scarce),  per  bottle 2 . 50-      3 . oo 

Fresh  cabbage,  per  pound • 8 .00-     10.  oo 

Hens  (kuritzy),  each 30.00-    40.00 

Pair  of  low  quality  boots 200.00-  250. oo 

Pair  of  socks  of  lowest  quality 40. oo-     50. oo 

One  ordinary  business  suit — low  quality 1500.00-1600.00 

Hay,  per  pood 180.00-  200 . oo 

Oats,  per  pood 300 . oo-  350. oo 

Horses  that  fall  in  the  streets,  and  there  are  many  of  them,  are 
utilized  for  food;  animals  of  less  prominence,  it  is  said,  are  utilized  for 
sausages. 

3.     BRITISH  EXPERIENCE1 

The  British  government  has  taken  action  to  correct  the  inequali- 
ties of  rising  prices,  first,  by  raising  wages,  and  secondly,  by  seeking 
to  arrest  the  rise  of  prices.  By  public  exhortation  and  private 
counsel,  by  governmental  influence  and  social  pressure,  and  finally  by 
act  of  Parliament,  the  British  government  has  intervened  actually  to 
compel  employers  in  nearly  all  industries  to  concede  rises  of  wages — 
war  advances  and  war  bonuses — to  the  railway  workers,  to  the  workers 
in  shipyards  and  munition  factories,  to  every  person  employed  in  the 
whole  engineering  industry,  to  the  couple  of  million  women  employed 
on  all  kinds  of  war  stores,  to  the  million  coal  miners,  to  all  the  govern- 
ment employees  getting  less  than  150  pounds  ($750)  a  year,  to  the 
school  teachers,  the  farm  laborers,  and  the  rest.  Altogether,  it  is 
estimated  that  the  rate  of  wages  has  been  increased  in  Great  Britain, 
taking  the  whole  wage-earning  class,  by  about  20  to  25  per  cent  on  an 
average.  This  falls  far  short  of  the  increase  in  the  cost  of  living,  so 
that  the  rate  of  wages,  measured  by  what  it  would  purchase,  has 
fallen  considerably  under  the  influence  of  war. 

1  By  Sidney  Webb.  Adapted  from  the  Atlantic  Monthly  (July,  1917), 
pp.  19-21. 

ED.  NOTE. — Sidney  Webb  is  the  foremost  English  student  of  labor  problems. 


452  ECONOMICS  OF  WAR 

The  British  government  has  also  assumed  the  control  of  the  rail- 
ways and  mines,  of  all  the  flour  mills,  of  all  the  merchant  shipping, 
and  of  all  the  munition  factories;  it  has  made  itself  the  sole  importer 
of  sugar  and  wheat,  and  has  become  an  importer  on  a  huge  scale  of 
meat,  rice,  and  many  other  things;  it  has  taken  over  all  the  wool, 
leather,  copper,  and  other  raw  materials;  its  Ministry  of  Munitions  is 
now  three  times  as  great  in  its  turnover  as  the  largest  single  industrial 
enterprise  in  the  world,  not  excluding  the  most  extensive  American 
trust.  And  wherever  the  government  controls  the  supply,  it  fixes  in 
one  way  or  another  both  the  wholesale  and  the  retail  price  of  the  com- 
modity, so  as  to  limit  the  advantage  that  any  dealer  can  take  of  the 
urgent  needs  of  the  consumer.  No  one  doubts  that  this  policy  has 
been  extremely  successful  in  preventing  prices,  at  particular  times  and 
in  particular  places,  from  soaring  sky-high;  nor  does  any  instructed 
person  imagine  that  a  "law  of  maximum,"  without  control  of  supply 
would  be  otherwise  than  ruinous  to  the  poorer  consumers. 

What  has  been  successful  in  Great  Britain  in  economizing  supplies 
has  been  a  widespread  appeal  to  the  whole  nation  to  limit  its  con- 
sumption of  wheaten  bread  (4  pounds  per  week),  meat  (2^  pounds  per 
week),  and  sugar  Q  of  a  pound  per  week)  to  a  prescribed  maximum  per 
person  in  the  household ;  and  to  make  up  the  necessary  subsistence  by 
the  use  of  substitutes,  such  as  fish,  other  cereals  than  wheat,  and  other 
vegetables  than  potatoes,  of  which  the  crop  throughout  all  Europe 
has  largely  failed.  More  efficacious  still  has  been  the  absolute  govern- 
ment monopoly  of  sugar,  secured  at  the  very  beginning  of  the  war, 
and  the  drastic  restriction  of  the  total  quantity  allowed  to  be  issued 
from  store,  the  aggregate  reduction  being  thus  infallibly  secured,  and 
the  retailers  being  left  to  share  what  sugar  they  obtained  among  their 
customers.  It  has  been  found  useful,  too,  to  make  the  wheaten  flour 
go  farther  by  compelling  all  the  millers  to  include  both  an  increased 
proportion  of  bran  and  a  certain  proportion  of  other  cereals.  More 
drastic  measures  are  near  at  hand. 

In  the  main,  however,  the  government  has  been  unable  to  prevent 
a  staggering  rise  in  prices  of  food-stuffs,  which  now  reaches  close  upon 
100  per  cent  all  round;  and  consequently  its  obligation  to  secure  an 
adequate  increase  of  wages  has  been  recognized.  The  average  increase 
of  20  to  25  per  cent,  to  which  the  employers  have  been  compelled,  has 
been  eked  out  by  (a)  the  liberal  scale  of  separation  allowances  paid  to 
the  dependents  of  all  men  called  to  the  colors,  and  of  pensions  given 
to  the  discharged  men,  these  two  items  now  amounting  to  five  hundred 


PRICES  AND  PRICE  CONTROL  453 

million  dollars  a  year  of  direct  government  subvention ;  (b)  the  absorp- 
tion into  wage-earning  industry,  not  only  of  all  the  unemployed  men, 
but  also  of  a  large  number  of  youths  of  either  sex  from  12  or  13  up- 
ward, of  women  married  and  unmarried,  and  even  of  old  men  who  had 
been  superannuated — thus  greatly  increasing  the  number  of  separate 
wage  earners  in  the  average  household;  and  (c)  the  rapid  spread  of 
piecework  in  place  of  time  work,  and  a  general  increase  in  the  hours 
of  labor,  resulting,  at  the  cost  of  greatly  increased  effort  and  strain, 
in  a  considerable  increase  in  total  earnings  apart  from  any  change  in 
the  wage  rate. 

The  outcome  seems  to  be  that,  in  contrast  with  all  previous  wars, 
and  with  all  other  governments,  the  British  government  has  this  time 
been,  up  to  the  present,  fairly  successful  in  staving  off  any  general 
fall  in  the  standard  of  life  of  its  people — a  notable  result  of  the  advance 
in  the  United  Kingdom  of  economic  knowledge  and  of  democratic 
influence.  It  will  be  interesting  to  see  with  what  success  America 
tackles  the  very  similar  economic  problem  with  which  it  is  now  con- 
fronted. 

4.     DO  BIG  PRICES  GET  THE  MOST  WORK  DONE  ?' 

"Economy  is  a  good  thing  in  its  place,  but  it  must  not  get  in  the 
way  of  the  supreme  need  of  victory.  We  must  pay  liberally,  because 
the  paramount  thing  is  to  get  results."  This  point  of  view  contains 
much  truth,  and  for  that  very  reason  it  is  peculiarly  necessary  to  show 
that  reasonable  economy  is  still  very  important  from  this  very  point 
of  view — that  of  the  vital  necessity  for  getting  the  most  work  done. 
The  evil  results  of  paying  extravagant  prices  for  government  work 
and  supplies  are  not  fully  realized,  largely  because  most  people  think 
of  them  merely  in  terms  of  dollars  and  cents  paid  out  from  the  federal 
treasury.  Since  the  liberty  loans  have  been  successful  and  since  the 
early  expenditures  fell  far  short  of  estimates,  many  probably  feel 
that  a  little  extra  expense,  while  undesirable,  is  no  very  serious  matter. 

Nothing  could  be  more  dangerously  fallacious.  The  government's 
inability  to  spend  the  amount  of  its  estimates  is  the  last  thing  in  the 
world  to  be  satisfied  about.  It  is  tangible  evidence  that  our  limits 
in  this  war  are  not  those  of  dollars,  but  those  of  labor  and  materials. 
It  means  that  our  financial  provisions  and  estimates  have  outrun 
our  ability  to  turn  labor  and  capital  from  the  pursuits  of  peace  to 

1  An  editorial. 


454  ECONOMICS  OF  WAR 

those  of  war.  We  would  gladly  spend  more  money  if  we  could  get 
correspondingly  more  war  work  done.  Unnecessary  profit-taking,  or 
"profiteering,"  whether  by  capital  or  labor,  is  one  obstacle  to  this 
turning  of  energy  and  materials  into  war  channels.  We  do  not  lack 
funds,  but  we  do  lack  competent  labor  in  the  places  where  it  is  needed 
in  war  work.  Our  supply  of  labor  cannot  be  indefinitely  increased, 
and  its  per  capita  efficiency  is  necessarily  diminished  by  sudden 
shiftings  to  unfamiliar  work.  Any  failure  to  make  the  best  use  of  this 
limited  supply  of  competent  and  mobilized  labor  is  a  loss  that  cannot 
be  made  good  by  any  amount  of  government  expenditure,  government 
borrowing,  or  government  taxation. 

Apparently,  wages  were  raised  for  such  skilled  shipbuilding  labor 
as  riveting  past  the  point  where  increased  wages  call  forth  less  work 
rather  than  more.  Men  have  been  able  to  earn  over  $100  a  week 
in  extreme  cases,  and  at  one  time  there  were  complaints  that  they 
loafed  on  the  job  or  worked  irregularly,  taking  days  off  to  spend 
their  wages,  and  drifting  from  plant  to  plant.  This  indicates  that 
sudden  and  unwonted  lavishness  in  wage  payments  is  not  merely  an 
extravagance — it  defeats  its  own  end,  in  that  it  does  not  get  the  work 
done. 

Profiteering  (either  by  labor  or  by  capital)  works  to  the  same  result 
in  a  different  way.  It  increases  the  unnecessary  consumption  of  the 
profiteers,  and  this  tends  to  keep  more  labor  working  to  produce 
these  nonessential  goods  than  would  otherwise  be  the  case.  Thus 
the  nonessential  industries  tend  to  bid  against  the  essential  ones  for 
the  limited  supply  of  labor,  and  thus  virtually  bid  against  the  govern- 
ment and  against  the  successful  prosecution  of  the  war.  If  non- 
essential  industries  are  so  rigidly  controlled  that  it  becomes  impossible 
for  them  to  use  more  labor  and  materials  because  of  profiteers'  expendi- 
tures than  they  would  otherwise  use,  and  impossible  for  the  profiteers 
to  spend  any  large  part  of  their  excess  income  on  consumption  goods, 
then  a  large  part  of  this  income  must  necessarily  come  back  to  the 
government  in  loan  subscriptions.  Thus  in  England  the  nouveau-rich 
laborer  or  contractor  cannot  hire  other  laborers  to  make  him  a  piano, 
because  the  government  does  not  allow  pianos  to  be  made.  He  can 
merely  employ  dealers  and  piano-movers  to  get  him  a  second-hand 
piano  which  some  war-pinched  middle-class  household  has  been  forced 
to  sell.  If  all  unnecessary  production  were  treated  in  this  way  the 
prosecution  of  the  war  would  not  be  seriously  interfered  with  by  any 
ordinary  profiteering  (except  through  the  hostility  and  sense  of 
injustice  that  is  sure  to  be  aroused),  and  the  question  of  profiteering 


PRICES  AND  PRICE  CONTROL  455 

would  be  chiefly  a  question  of  justice.  As  things  stand,  however,  the 
question  is  also  one  of  efficient  mobilization  of  our  labor  power  to  meet 
the  needs  of  war,  and  from  this  point  of  view  it  is  nearly  as  bad  to 
make  profits  unnecessarily  large  as  to  make  them  so  small  or  uncer- 
tain that  no  one  will  undertake  the  risks  involved  in  doing  the  work 
that  must  be  done.  When  the  ship-worker  knocks  off  work  to  spend 
his  last  week's  wages,  he  is  not  merely  depriving  the  country  of  the 
worth  of  his  own  labor,  but  he  is  hiring  people  to  amuse  him  who 
might  otherwise  be  building  ships  themselves,  or  doing  some  other 
war  work.  The  same  is  true  of  the  capitalist  profiteer  spending  his 
profits.  Profiteering  is  the  way  to  prevent  national  mobilization. 

LIV.    The  Case  against  Control 
i.     PRICE  CONTROL  AND   INDUSTRIAL  MOBILIZATION1 

It  is  the  purpose  of  this  paper  to  direct  attention  to  some  serious 
dangers  in  connection  with  price  regulation  in  the  form  in  which  it  will 
likely  be  developed  in  the  coming  months.  The  agitation  for  the  reg- 
ulation of  prices  usually  develops  rather  late  in  a  war,  but  in  the 
present  conflict  we  are  beginning  very  early,  not  only  to  agitate  the 
question,  but  also  to  develop  the  machinery  necessary  to  effective 
control.  This  in  part  is  owing  to  the  world-wide  effect  of  the  long- 
continued  struggle  in  Europe,  the  enormous  rise  in  prices  abroad  hav- 
ing found  concurrent  reflection  in  rapidly  rising  prices  in  the  United 
States  during  the  past  two  years;  and  in  part  it  is  due  to  mere  imi- 
tation of  the  policy  of  the  nations  of  Europe. 

This  early  development  of  price  control  raises  an  exceedingly 
difficult  problem,  because  under  our  voluntary  system  of  industrial 
mobilization  we  rely  upon  prices  and  profits  to  attract  industry  into 
government  service.  If  we  keep  prices  down,  particularly  in  war 
industries,  will  it  "pay"  business  men  to  divert  the  productive 
power  of  the  country  to  war  business  ?  We  may  consider  a  concrete 
case. 

Several  forms  of  price  control  have  been  suggested  in  one  source 
or  another,  but  the  one  that  is  most  commonly  advocated,  the  one 
that  makes  the  strongest  appeal  to  conservative  public  opinion,  is 
price  control  based  on  cost  of  production.  It  is  believed  that  indus- 
tries, even  those  producing  war  supplies,  are  entitled  to  "reason- 
able" profits.  And  "reasonable"  profits  have  to  be  reckoned  from  a 

1  By  Harold  G.  Moulton.  Adapted  from  "Some  Dangers  of  Price  Control," 
City  Club  [Chicago]  Bulletin,  September  10,  1917. 


456  ECONOMICS  OF  WAR 

basis  of  cost.  Let  us  assume  that  6  per  cent  is  a  reasonable  profit;  then 
a  plant  producing  a  commodity  at  a  unit  cost  (including  selling  costs) 
of  $i  .00  should  be  permitted  to  sell  at  not  more  than  $i  .06.  To  the 
uninitiated  the  problem  of  price  control  seems,  therefore,  a  relatively 
simple  problem. 

I  shall  here  pass  over  the  difficult,  if  not  impossible,  problems 
involved  in  ascertaining  the  precise  unit  cost  in  any  particular  establish- 
ment, and  confine  myself  to  the  problem  of  the  varying  costs  in  differ- 
ent plants  engaged  in  the  same  line  of  activity.  Plant  A  has  a  cost  of 
$i  .00;  plant  B  of  $i .  10,  and  plant  C  of  $i  .20.  These  differences  of 
cost  may  be  due  to  various  causes:  Difference  in  location,  difference 
in  management,  difference  in  volume  of  output,  etc.  But  it  is  clear 
that  the  product  of  all  is  imperatively  required.  Price  control,  there- 
fore, must  not  force  any  of  them  out  of  business.  Now  if  the  price 
fixed  were  $i  .06  it  would  give  a  reasonable  profit  to  plant  A,  but  it 
would  not  even  cover  costs  for  plants. B  and  C.  The  price  must 
obviously  be  high  enough  to  give  a  "reasonable"  profit  to  the  plant 
with  the  highest  cost  of  production,  with  marginal  cost,  to  use  the  com- 
mon term  of  the  economist.  This  means  concretely,  in  the  case 
before  us,  a  price  of  $i .  26.  It  should  be  noted,  however,  that  this 
obviously  means  more  than  "reasonable"  profits  for  all  plants  whose 
cost  is  less  than  $1.20.  It  means  in  certain  cases  enormous  rates 
of  dividend  for  certain  peculiarly  efficient  or  peculiarly  fortunate 
establishments. 

This  necessity  of  basing  prices  on  the  marginal  or  highest  cost  of 
production  in  existing  plants  has  been  discussed  in  various  quarters  of 
late.  But  thus  far  I  have  been  unable  to  find  any  recognition  of  the 
necessity  of  using  as  the  basis  of  price  fixing  a  cost  that  is  actually 
higher  than  the  marginal  cost  in  existing  factories.  What  do  I  mean  ? 
I  mean  that  not  only  must  price  control  not  drive  existing  factories 
out  of  the  production  of  war  supplies,  but  that  it  must  not  cut  off  the 
inducements  to  business  men  to  shift  from  non-war  industries  to  war 
business.  We  have  seen  that  the  paramount  necessity  is  industrial 
reorganization,  the  shifting  of  labor  .and  capital  from  lines  of  activity 
that  are  unimportant  for  war  purposes  to  the  lines  that  are  impera- 
tively necessary.  Price  control,  in  the  interests  of  the  general  con- 
suming public,  or  as  a  means  of  lessening  the  money  costs  of  the 
government  for  materials,  must  not  be  allowed  to  stand  in  the  way  of 
industrial  mobilization.  Let  us  consider  the  possible  dangers. 

X  is  a  manufacturer  of  a  commodity  that  is  unimportant  for  war 
purposes.  His  plant  could  be  made  over  into  an  establishment  for 


PRICES  AND  PRICE  CONTROL  457 

the  manufacture  of  war  supplies  at  a  cost  of  $100,000.  He  reasons 
that  since  he  has  had  no  experience  in  this  particular  line  of  manu- 
facture his  management  will  not  be  very  efficient  the  first  year. 
Furthermore,  his  location  is  not  favorable  for  this  business,  and  his 
transportation  costs  for  raw  materials  and  unfinished  products  will, 
therefore,  be  unusually  heavy.  He  knows  that  there  is  a  scarcity  of 
labor  that  is  skilled  in  this  line  of  work  and  that  to  get  laborers  at  all 
he  must  offer  high  enough  wages  to  induce  them  to  leave  steady  posi- 
tions elsewhere  and  cast  their  lots  with  him  for  a  period  of  indefinite 
duration.  He  must,  therefore,  count  on  highly  paid  yet  inefficient 
labor.  He  estimates  his  total  outlay  and  finds  that  his  cost  would 
approximate  $i  .40  per  unit,  as  compared  with  a  top  cost  of  $i  .20 
for  existing  plants  in  that  line.  That  is  to  say,  his  cost  would  be  $i  .40 
if  he  could  charge  off  depreciation  on  this  $100,000  expended  in 
rehabilitation  at  the  usual  rate.  But  the  duration  of  the  war  is 
uncertain.  It  may  be  that  he  will  have  to  re-rehabilitate  his  factory 
before  he  actually  has  a  chance  to  manufacture  war  supplies.  In 
any  event  there  is  sure  to  be  a  heavy,  but  indefinite,  obsolescence 
factor,  which  must  be  added  as  one  of  the  costs  of  production.  The 
exact  total  obviously  becomes  guesswork;  but,  let  us  assume  that  X 
could  know  that  it  would  be  not  more  than  $i  .60.  This  is  a  high 
cost,  but  prices  of  war  materials  have  been  soaring  rapidly  and  they 
bid  fair  soon  to  reach  $i .  75  in  this  line.  X  has  about  decided  to  make 
the  plunge,  when  Congress  begins  to  discuss  the  problem  of  high  prices 
and  to  insist  that  they  must  come  down.  X  decides  that  he  had  better 
wait  for  a  time  and  see  what  happens.  Eventually,  after  many 
precious  months  have  elapsed,  we  work  out  a  fair  price  based  on  the 
marginal  cost  in  existing  factories — a  price  of  $i  .26,  to  use  the  illus- 
trative case  given  above.  Do  we  need  to  inquire  further  whether  X 
will  decide  to  manufacture  war  supplies  ? 

2.     PRICE  FIXING  BY  GOVERNMENT1 

Let  us  consider  what  is  involved  in  the  fixing  of  prices  by  law  or 
executive  fiat.  If  an  omnipotent  and  omniscient  being  were  to  fix 
all  prices,  it  is  conceivable  that  the  results  to  the  whole  community 
might  be  advantageous,  although  many  individuals  would  be  ruined. 
The  President  of  the  United  States  is  not  such  a  being,  nor  is  Congress, 

1  By  David  MacGregor  Means.  Adapted  from  the  Unpopular  Review, 
April-June,  1918. 

ED.  NOTE. — Mr.  Means  (1847 — )  i§  an  editorial  writer  and  frequent  contrib- 
utor to  reviews  and  magazines. 


458  ECONOMICS  OF  WAR 

nor  all  the  great  and  costly  horde  of  federal  and  state  and  city  adminis- 
trators with  all  their  inspectors  and  subordinates  and  prosecuting 
attorneys.  If  there  is  no  omniscient  being  to  fix  prices,  there  must 
be  a  great  many  ordinary  human  beings,  some  ignorant,  some  arbi- 
trary, some  acting  on  one  theory,  some  on  another,  and  some  on  none. 

The  coal  famine  is  a  startling  illustration  of  what  follows  when 
rulers  try  to  compel  their  subjects  to  do  business  from  benevolence. 
When  we  went  to  war  it  was  evident  that  more  coal  than  usual  would 
be  needed,  and  miners  and  dealers  put  up  prices  to  a  Very  high  figure. 
Coal  is  an  absolute  necessity.  Consumers  will  pay  almost  any  price 
rather  than  go  without  it,  and  producers  and  dealers  took  advantage 
of  the  demand.  The  matter  was  in  the  first  place  taken  charge  of 
by  Secretary  Lane,  and  after  consulting  with  men  representative  of  the 
industry  it  was  agreed  that  three  dollars  a  ton  was  a  price  at  which 
soft  coal  could  be  produced  and  sold  in  normal  quantities — although 
it  was  then  selling  for  five  or  six  dollars — and  the  business  was  not 
seriously  interrupted.  Secretary  Baker  and  Secretary  Daniels  then 
appeared  in  the  proceeding,  and  it  was  at  once  decided  that  the  coal 
miners  were  not  benevolent  enough.  A  price  of  two  dollars  a  ton 
instead  of  three  was  ordered,  and  the  business  was  demoralized. 
Some  mines  could  not  be  worked  on  that  basis.  Laborers  had  to  be 
paid  very  high  wages  and  were  hard  to  get  at  that.  It  was  not  until 
October  27,  when  the  situation  became  alarming,  that  Dr.  Garfield, 
who  had  been  made  fuel  controller  on  August  24,  admitted  that  the 
attempt  to  do  business  on  benevolent  principles  was  a  failure,  and  the 
price  of  soft  coal  was  raised.  It  has  since  been  several  times  increased. 

It  was  too  late.  What  had  happened  meanwhile  ?  In  some  parts 
of  the. country  the  normal  production  of  coal  had  been  reduced.  In 
many  parts  the  usual  stock  had  not  been  laid  in.  Some  coal  miners 
did  not  supply  their  best  coal,  but  worked  their  inferior  veins.  Some 
coal  was  not  carefully  picked  over,  and  gave  out  little  heat,  as  many 
householders  found  out  to  their  ultimate  distress.  The  price  of  coke 
was  not  fixed;  it  rose  to  six  dollars  a  ton  or  more.  Now  three  tons 
of  bituminous  coal  will  produce,  approximately,  two  tons  of  coke. 
Three  tons  of  coal,  sold  for  two  dollars  a  ton,  brings  six  dollars.  Two 
tons  of  coke,  sold  for  six  dollars  a  ton,  brings  twelve  dollars.  One 
must  be  more  than  ordinarily  benevolent  to  sell  coal  at  a  loss  when 
coke  can  be  sold  at  such  a  profit. 

Dr.  Garfield  seems  to  have  meant  to  favor  the  consumers  of  coal 
at  the  expense  of  the  producers.  He  has  no  doubt  caused  loss  to  some 


PRICES  AND  PRICE  CONTROL  459 

producers;  but  he  has  caused  greater  loss  to  many  consumers.  The 
poorest  of  them  have  suffered  most.  They  have  had  to  pay  very  high 
prices.  Some  of  them  could  get  no  coal  at  any  price.  They  have 
had  to  pay  great  sums  for  stoves  and  gas  and  oil.  Millions  of  our 
people  depend  on  kerosene  for  light  and  heat.  Owing  to  the  great 
demand  for  gasolene,  kerosene  had  been  cheap.  It  was  almost  the 
only  cheap  thing  consumed  by  the  poor.  But  the  sudden  demand 
for  it  raised  its  price,  and  those  who  depended  on  it  were  thus  taxed 
because  the  production  and  distribution  of  coal  had  been  interrupted 
by  the  attempt  to  fix  its  price. 

What  would  have  happened  if  the  government  had  not  fixed  the 
price  of  wheat  ?  In  the  first  place  the  competition  of  the  government 
buyers  could  have  been  stopped.  There  might  have  been  one  pur- 
chasing agent,  and  the  existence  of  a  cash  buyer  with  unlimited  funds 
able  to  absorb  a  third  of  the  supply  would  itself  have  steadied  the 
market.  Speculators  would  have  been  cautious.  The  government 
had  the  power,  since  exercised,  to  take  most  of  their  profits  away  from 
them.  It  could  have  made  all  parties  report  their  excessive  profits 
every  month,  instead  of  postponing  their  collection  till  next  June. 
Existing  laws  forbade  combinations  of  dealers,  and  no  single  person 
can  fix  the  price  of  such  a  staple  as  wheat,  or  long  maintain  it  at  an 
artificial  price.  There  have  been  "-corners"  of  wheat  "on  the  spot." 
Some  of  them  have  been  profitable  to  the  men  who  managed  them, 
others  not.  Some  of  them  have  at  once  collapsed.  None  of  them 
has  long  maintained  an  abnormal  price,  as  is  proved  by  the  fact  that 
the  price  of  bread  has  seldom  risen  to  or  been  maintained  at  such  a 
price.  But  when  there  is  an  actual  dearth  of  wheat  the  price  of  bread 
must  normally  rise,  and  it  is  desirable  that  it  should. 

To  refer  to  Adam  Smith,  the  wheat  grown  in  one  year  must  last 
till  the  next.  If  there  is  a  scant  harvest,  the  usual  consumption  of 
bread  must  be  diminished  or  there  will  be  famine  before  midsummer. 
Consumers  must  be  pinched  now,  or  they  will  be  starved  then.  If 
the  price  of  bread  had  been  allowed  to  rise  by  a  half  last  spring — 
it  would  perhaps  not  have  risen  so  much — consumption  would  have 
been  at  once  checked.  The  bakers  would  have  bought  less  flour, 
the  millers  would  have  ground  less.  A  very  high  price  for  wheat 
could  not  have  been  maintained  unless  the  buying  of  the  government 
maintained  it.  It  might  be  said  that  a  very  high  price  would  not  have 
been  abnormal.  There  was  a  military  necessity — our  Allies  had  to  be 
helped,  cost  what  it  might.  Great  profits  would  have  been  made, 


460  ECONOMICS  OF  WAR 

but  they  would  have  gone  to  the  farmers,  who  would  thus  have  been 
encouraged  to  increase  their  production  the  following  season. 

But  great  expenses  would  have  been  avoided.  The  cost  of  the 
army  of  food  administrators  is  enormous.  Their  interference  with 
the  natural  course  of  prices  has  done  little  good  ajid  much  harm. 
Hoarding — in  our  climate  absolutely  necessary  as  a  safeguard  against 
famine  prices  and  an  important  regulator  of  consumption — has  been 
penalized  with  little  present  gain  and  much  later  loss.  Tons  of  printed 
matter  containing  all  sorts  of  counsels  and  prescriptions  and  appeals 
and  threats,  many  of  them  conflicting,  many  simply  foolish,  have 
burdened  the  mails  and  postered  the  walls  and  windows  of  our  build- 
ings. The  government  issued  a  proclamation  setting  up  standard 
prices  for  staple  groceries,  bought  for  cash  and  carried  away  by  the 
buyer.  A  company  in  New  York  City,  supplying  the  wealthier  class, 
advertises  that  its  prices  average  lower  than  the  government's,  while 
it  allows  credit  and  delivers  goods. 

In  a  literal  sense,  man  does  not  live  by  wheat  bread  alone.  There 
are  many  substitutes.  If  flour  doubles  in  price,  people  who  live  in  the 
country  and  bake  their  own  bread  will  buy  less  flour  and  use  more  of 
the  other  products  of  their  land,  and  more  of  their  land  for  these 
products — milk,  poultry,  nuts,  fruits,  vegetables.  In  the  eastern 
states  many  farmers  have  this  year  raised  their  own  wheat.  Millions 
of  our  people  like  nothing  better  than  cakes  made  from  corn  or  oats 
or  buckwheat.  Millions  in  the  cities,  if  they  found  that  a  five-cent 
loaf  was  to  cost  ten  cents,  would  reduce  their  consumption  of  bread. 
Many  have  done  this  from  patriotism  or  benevolence;  a  great  many 
more  would  have  done  it  when  a  high  price  made  it  for  their  own  inter- 
est. This  year,  fortunately,  the  crop  of  potatoes  is  large,  but  they  have 
not  come  freely  to  market.  The  price  of  bread  being  held  down  by 
our  rulers,  people  ate  bread  rather  than  potatoes.  The  city  dealers 
dared  not  hoard  potatoes;  they  might  be  "commandeered."  Potatoes 
are  spoiled  by  frost;  wheat  is  not  injured.  The  relative  cheapness 
of  bread  caused  the  farmers  early  in  the  season  to  hoard  their  pota- 
toes; the  early  coming  of  winter  and  its  severity  has  locked  up  these 
hoards.  They  may  be  later  released ;  but  all  the  time  the  consump- 
tion of  bread  has  been  abnormally  stimulated  by  fixing  the  price 
too  low. 

But  could  the  common  people  have  paid  more  for  their  bread  ?  It 
is  said  that  Mr.  Woolworth,  in  a  recent  conversation  with  the  archi- 
tect of  the  splendid  building  with  which  they  have  adorned  the  city 


PRICES  AND  PRICE  CONTROL  461 

of  New  York,  asked  him  how  much  iron  was  used  in  the  structure. 
Mr.  Gilbert  reported  the  quantity  as  over  27,000  tons.  "Last 
year,"  said  Mr.  Woolworth,  "I  sold  in  my  stores  more  than  that 
weight  in  candy."  Now  with  the  money  which  people  paid  for  that 
candy  they  could  have  bought  from  50,000,000  to  100,000,000  loaves 
of  bread — the  number  varying  with  weight  and  price;  and  there  are 
many  sellers  of  candy  besides  Mr.  Woolworth.  In  the  fiscal  year  1916 
some  twenty-one  billions  of  cigarettes  were  consumed;  in  1917 
nearly  thirty-one  billions,  costing  perhaps  $250,000,000 — "one  half- 
pennyworth of  bread  to  this  intolerable  deal  of  sack." 

We  wish  Mr.  Hoover  success  in  his  aim.  Perhaps  it  has  not  been 
attained,  but  possibly  it  will  be  attained.  We  shall  believe  him  if  he 
says  it  will  be;  but  perhaps  it  might  have  been  better  attained  by 
letting  our  people  attend  to  their  own  interests  under  the  natural 
law  of  supply  and  demand,  rather  than  by  compelling  them  to  obey 
the  arbitrary  orders  of  a  great  number  of  petty  dictators,  very  few  of 
whom  possess  Mr.  Hoover's  wisdom* and  none  of  whom  commands  the 
enthusiastic  devotion  that  he  has  so  honorably  deserved. 

LV.     General  Estimates  of  American  Policy 

i.     GOVERNMENT  PRICE-FIXING  IN  THE  UNITED 
STATES1 

Economists  have  generally  condemned  legally  fixed  prices,  point- 
ing out  the  danger  of  stopping  production  if  the  price  is  held  down, 
the  ease  of  evasions,  etc.  History  is  full  of  cases  where  price  laws 
have  merely  forced  retailers  to  close  their  shops  and  left  the  market 
empty. 

But  at  present  the  price-fixing  policy  seems  to  be  working  well 
with  wheat  and  flour,  anthracite  and  copper,  although  it  has  probably 
done  much  harm  and  little  good  in  the  case  of  bituminous  coal.  Even 
in  this  place  there  are  possibilities  of  improvement,  and  the  control 
over  coal  shipments,  denying  coal  to  nonessential  industries,  may 
turn  out  to  be  one  of  the  most  important  parts  of  the  whole  scheme. 

In  ordinary  times  prices  guide  and  control  production.  If  prices 
rise  in  some  lines,  production  increases  there,  drawing  labor  and  capital 
away  from  industries  where  prices  have  not  risen.  If  the  state 

1  By  B.  M.  Anderson,  Jr.  Adapted  from  the  Economic  World  (January  5, 
1918),  p.  ii. 

ED.  NOTE. — Mr.  Anderson  is  assistant  professor  of  political  economy  at  Har- 
vard University. 


462  ECONOMICS  OF  WAR 

interferes  with  prices  it  must  provide  a  substitute  for  the  price- 
control  of  industry.  A  mere  legal  fiat  fixing  prices  must  be  a  failure 
in  the  absence  of  effective  control  over  the  whole  chain  of  industrial 
processes  leading  up  to  the  price. 

This  control  has  come  through  law,  moral  pressure,  public  opinion. 
In  war  time  a  patriotic  people  generates  a  rich  fund  of  social  energy, 
which  can  be  used  to  encourage  and  coerce  men  to  make  sacrifices. 
If  men  will  fight  and  risk  death  to  meet  the  group's  demand,  to  be 
able  to  hold  up  their  heads  among  their  fellows,  they  will  also  produce 
copper  without  profit  for  the  same  reason  if  the  social  pressure  can 
be  made  strong  enough. 

It  is  easy  to  put  pressure  on  conspicuous  men  and  great  corpora- 
tions. Copper  and  anthracite  presented  an  easy  problem.  But  the 
farmers  are  numerous,  obscure,  and  scattered.  It  is  virtually  impos- 
sible to  coerce  them.  A  high  price  of  wheat  was  necessary  there.  So 
with  laborers.  They  cannot  be  coerced.  High  wages  are  necessary. 
Bituminous-coal  mines  are  numerous  and  scattered.  The  cut  in 
price  was  far  too  drastic  there,  although  on  the  whole  the  trade  was 
more  scared  than  hurt,  since  existing  contracts  were  respected,  and 
the  bulk  of  the  output  has  not  been  sold  at  the  government's  prices. 
Jobber's  margins  have  probably  been  put  too  low,  and  the  jobbers 
have  probably  not  been  as  active  and  efficient  in  routing  bituminous 
coal  as  would  have  been  the  case  had  their  margins  been  wider. 
Part  of  the  railway  congestion  might  have  been  avoided  had  the 
jobbers  been  more  active  and  less  interfered  with. 

One  great  gain,  and  a  necessary  part  of  the  price-fixing  scheme, 
has  been  the  rationing  of  supplies,  so  that  they  would  go  where  most 
needed.  It  is  politically  impossible  to  draft  labor  from  the  non- 
essential  industries  to  the  production  of  munitions  and  necessities  of 
life.  Yet  this  can  be  indirectly  but  effectively  accomplished  by  refus- 
ing coal,  copper,  steel,  cars,  etc.,  to  the  nonessential  industries. 
This  is  probably  the  most  important  feature  of  the  general  scheme. 

2.     A  YEAR  OF  FOOD  ADMINISTRATION1 

No  problem  in  the  first  year  of  the  Food  Administration's  history 
has  involved  considerations  of  such  subtle  and  far-reaching  importance 
as  the  matter  of  price-fixing.  The  Food  Administration  both  is  and 

'By  Thomas  H.  Dickinson.  Adapted  from  the  North  American  Review, 
July,  1918. 

ED.  NOTE. — The  author,  associate  professor  of  English  at  the  University  of 
Wisconsin,  is  now  a  member  of  the  Food  Administration. 


PRICES  AND  PRICE  CONTROL  463 

is  not  at  the  same  time  a  price-fixing  body.  By  Section  14  of  the  Lever 
Bill,  which  became  the  Food  Control  Law,  the  President  is  authorized 
from  time  to  time  to  determine  and  fix  a  reasonable  guaranteed  price 
for  wheat,  and  this  section  itself  fixed  the  price  for  the  crop  of  1918  at 
not  less  than  $2  .00  per  bushel  at  the  principal  interior  primary  mar- 
kets. Pursuant  to  this  section  the  President  has,  by  two  separate 
decrees,  set  the  price  of  1917  wheat  and  of  the  1918  crop  at  $2.20 
per  bushel.  Section  1 1  of  the  law  authorizes  the  President  to  purchase 
and  store  and  sell  wheat  and  flour,  meal,  beans,  and  potatoes.  Mani- 
festly any  purchase  so  made  by  the  government  would  in  effect  fix 
the  price.  Aside  from  these  delegations  of  power  no  authority  is 
given  by  the  Food  Control  Law  to  fix  prices.  And  yet  a  study  of  the 
operations  of  these  provisions  as  well  as  a  regard  for  the  implications 
of  other  functions  of  the  Food  Administration  carry  the  conviction 
that  price-fixing  is  a  necessary  and  inescapable  corollary  of  the  effective 
prosecution  of  the  Food  Administration  program. 

There  are  many  evidences  that  price-fixing  has  come  to  lodge 
itself  as  an  unwelcome  factor  in  the  program  of  the  Food  Adminis- 
tration. Price-fixing  came  to  be  a  fact  even  while  avoided  as  a  theory, 
and  eventually  it  has  become  necessary  to  face  it,  if  not  to  accept  it, 
even  as  a  theory.  What  are  the  evidences  that  price-fixing  is  essen- 
tially involved  in  the  program  of  the  Food  Administration?  One 
piece  of  evidence  lies  in  the  fact  that  when  once  you  have  fixed  the 
price  of  one  commodity  the  condition  is  bound  to  be  reflected  in  other 
commodities.  In  fixing  the  price  of  wheat  Congress  fixed  as  well, 
though  not  so  explicitly,  the  price  of  corn,  and  hogs,  and  sugar  beets. 
The  determining  and  administering  of  these  prices  it  left  to  the  Food 
Administration. 

A  further  evidence  that  the  Food  Administration  could  not  avoid 
the  onus  of  price-fixing  lies  in  the  reasons  for  which  the  Administra- 
tion was  brought  into  existence  and  the  services  it  was  created  to 
perform.  The  Food  Administration  is  a  war  agency.  Its  chief  pur- 
pose is  the  feeding  of  warring  nations,  our  own  nation  and  the  Allies. 
All  its  other  activities,  its  conservation,  its  stabilization  of  trade 
processes,  its  encouragement  of  production,  are  tributary  to  the  one 
purpose  of  segregating  stocks  of  food  for  the  effective  prosecution 
of  the  war.  This  latter  purpose,  in  fact,  takes  the  Food  Administra- 
tion directly  or  indirectly  into  the  market.  As  the  agent  and  corre- 
spondent of  the  army,  the  navy,  the  Allies,  and  the  neutrals  in  the 
American  food  markets  the  Food  Administration  wields  a  power  of 


464  ECONOMICS  OF  WAR 

purchase  which,  indiscriminately  handled,  would  amount  to  cornering 
the  market. 

In  such  a  situation  a  double  set  of  responsibilities  arise,  the 
responsibility  toward  its  clients,  the  army,  navy,  and  allied  and  neutral 
nations,  and  responsibility  toward  the  mass  of  the  American  people, 
with  whom,  in  fact,  the  Food  Administration,  in  its  capacity  as 
agent,  would  be  coming  into  competition  and  "bulling"  the  market. 
In  fact,  these  responsibilities  are  one,  but  unless  their  dual  nature  is 
accepted  the  interests  of  the  one  or  the  other  will  soon  be  found  to 
suffer.  These  responsibilities  can  be  met  only  in  case  the  Food 
Administration  accepts  fully  the  powers  its  commanding  place  in  the 
market  awards  to  it  as  opportunities  for  service  to  the  producer  and 
the  consumer. 

Its  responsibility  toward  the  official  agencies  of  the  war  the  Food 
Administration  accepted  through  the  establishment  of  a  Division  of 
Co-ordination  of  Purchase  which  works  in  companionship  with  the 
Federal  Trade  Board  and  the  interested  purchasing  agencies.  To 
each  of  these  the  Food  Administration  helps  to  allocate  stocks  of 
food;  it  helps  further  by  distributing  orders  equitably  to  different 
trade  agencies.  But  the  Food  administration  cannot  stop  there. 
This  is  but  the  beginning  of  its  service  and  its  responsibility.  Beyond 
the  supplying  of  stocks  to  official  buyers  it  has  the  far-reaching  respon- 
sibility of  maintaining  a  steady  and  increasing  flow  from  the  producers 
and  of  maintaining  the  morale  and  the  nutrition  of  the  mass  of  the 
population  which  is  supporting  the  war.  The  Food  Administrator 
had  from  the  beginning  repudiated  the  idea  of  high  prices  as  an  incen- 
tive to  saving.  Conservation  was  always  possible  by  high  prices,  but 
this  was  the  conservation  of  starvation.  It  was  the  conservation  that 
laid  its  heaviest  burden  on  those  least  able  to  bear  it.  Though  it  has 
not  been  possible  to  lower  war-time  prices  to  peace-time  standards, 
the  Food  Administration  has  exerted  all  its  force  to  keep  prices  from 
reflecting  the  abnormal  pressure  on  the  market.  In  striving  for  this 
end  the  Administration  was  setting  aside  one  of  the  strongest  instru- 
ments for  enforcing  saving  by  the  ultimate  consumer.  Though 
America  has  not  gone  as  far  as  England  has  gone  in  the  matter  of 
bread,  the  effort  has  been  made  to  protect  the  worker  against  high 
prices,  even  to  absolve  certain  sections  of  the  community  from  some 
of  the  sacrifices  demanded  of  their  better  conditioned  neighbors. 
While  this  principle  has  been  justified  both  here  and  abroad  in  the 
morale  of  the  people,  it  is  clear  that  the  end  so  sought  is  not  entirely 


PRICES  AND  PRICE  CONTROL  465 

consistent  with  a  program  of  universal  saving  of  food.  America  has 
had  to  become  accustomed  to  the  idea  that  while  a  great  proportion 
of  our  population  is  willing  conscientiously  to  join  the  program  of 
conservation,  there  are  others  to  whom  the  increased  wages  of  war- 
time have  brought  higher  standards  of  living,  who  neither  will  nor 
can  reasonably  be  expected  to  conserve. 

LVI.     Significant  Phases  of  Control 
i.    CONTROL  OF  MEAT  PACKING1 

I.    RULES  FOR  LICENSEES  WITH  ANNUAL  SALES  EXCEEDING 

$100,000,000 

ARTICLE   II.      REGULATION   OF  PROFIT 

Section  3, — Ratio  of  profit  to  investment.  Licensee  shall  so 
conduct  his  business  that  the  annual  profit  of  business  of  Class  i 
shall  not  exceed  nine  per  cent  of  the  investment  therein,  as  hereinafter 
defined,  and  that  the  annual  profit  of  business  of  Class  2  shall  not 
exceed  fifteen  per  cent  of  the  investment  therein,  as  hereinafter 
defined;  no  limitation  being  placed  upon  the  profit  of  business  of 
Class  3 ;  provided,  however,  that  in  no  case  shall  the  profit  on  business 
of  Class  i  exceed  the  limitation  based  on  sales  provided  for  packing 
concerns  having  sales  of  less  than  $100,000,000  per  year.  The  limita- 
tion of  profit  in  the  one  class  of  business  is  independent  of  the  limita- 
tion of  profit  in  the  other,  and  no  deficiency  in  the  profit  of  business  of 
one  class  shall  be  made  up  by  so  conducting  the  other  as  to  obtain  an 
excess  of  profit  above  the  limitation  specified. 

Provided,  that  licensee  shall  correctly  segregate  the  investment 
and  the  profits  of  each  branch  or  department  of  his  business,  and,  in 
doing  so  shall  be  subject  to  the  same  rules  as  are  hereinafter  provided 
with  respect  to  segregation  between  the  three  classes  of  business  dis- 
tinguished in  Section  i. 

Section  8. — Profits — How  computed.  In  computing  his  profits 
on  business  of  Class  i  and  Class  2  for  the  purpose  of  Section  3,  licensee 
shall  observe  the  following  regulations: 

i.  Existing  methods  to  be  continued. — Except  as  expressly  pro- 
vided in  this  section,  or  as  hereafter  expressly  authorized  or  directed 
by  the  chief  of  the  meat  division,  licensee  shall  continue  to  compute 
the  profits  of  his  business  and  of  the  several  departments  thereof  in 

1  From  United  States  Food  Administration,  Meat  Division,  Rules  and  Regula- 
tions Relating  to  the  Profits  of  Slaughtering  and  Meat  Packing  Concerns,  Chicago, 
1917. 


466  ECONOMICS  OF  WAR 

accordance  with  the  same  methods  and  principles  as  he  shall  have 
employed  during  the  twelve-month  period  preceding  November  i, 
1917;  and  he  shall  not  adopt  any  method  or  device  which  will  conceal 
or  understate  the  full  and  true  profit  thereof,  or  which  will  divert  the 
profit  properly  accruing  to  licensee  to  any  other  person  or  corporation, 
or  which  will  divert  the  profit  properly  attributable  to  business  of 
one  class  to  business  of  another  class. 

2.  Interest. — No  deduction  shall  be  made  from  profits  on  account 
of  current  payments  or  accruals  of  interest  on  bonds,  notes,  bills  or 
accounts  payable,  or  any  other  interest,  for  payments  or  accruals  of 
dividends  on  any  class  of  capital  stock  of  licensee  or  for  provisions  for 
sinking  funds,  nor  shall  such  payments,  accruals,  or  provisions  be 
charged  to  operating  expenses; 

Provided,  That  any  excess  payment  of  interest  on  bonds,  notes, 
bills  or  accounts  payable  above  a  rate  of  five  per  cent  per  annum  may 
be  charged  to  operating  expenses,  said  excess  to  be  computed  on  the 
basis  of  the  aggregate  of  such  indebtedness  of  all  kinds  and  the  aggre- 
gate interest  thereon. 

4.  Transfer  values. — Any   material   or  product   transferred   by 
licensee  from  any  department  falling  under  one  of  the  classes  distin- 
guished in  Section  i  to  a  department  falling  under  another  class,  or 
any  material  or  product  sold  by  licensee  to  or  purchased  by  licensee 
from  any  corporation  or  concern  in  which  licensee  is  directly  or  indi- 
rectly interested,  shall  be  valued  in  the  accounts  at  its  true  and  fair 
market  price  or  market  value.     Such  price  or  value  shall  be  taken  as 
of  the  date  of  the  actual  physical  transfer  or  delivery,  and  the  time  of 
such  transfer  or  delivery  shall  continue  to  be  fixed  in  accordance  with 
the  practice  of  licensee  in  the  year  preceding  November  i,  1917,  unless 
otherwise  authorized  or  directed  by  the  chief  of  the  meat  division. 
This  same  rule  shall,  unless  otherwise  authorized  by  the  chief  of  the 
meat  division,  be  observed  in  respect  to  materials  transferred  from 
any  department  to  any  other  department. 

5.  Depreciation. — Reasonable  provision  for  depreciation  of  build- 
ings, machinery,  and  equipment  may  be  deducted,  but  such  provision 
shall  not,  except  with  express  approval  of  the  chief  of  the  meat  divi- 
sion, exceed  the  normal  and  customary  provision  therefor  heretofore 
made  by  licensee,  and  the  chief  of  the  meat  division  reserves  the  righ  t 
to  reduce  any  such  provision  which  he  deems  excessive. 

6.  Repairs  and  maintenance. — Only  reasonable  expenditures  for 
repairs,  renewals,  and  maintenance  of  buildings,   machinery,  and 
equipment  may  be  charged  to  operating  expenses,  and  in  no  case 


PRICES  AND  PRICE  CONTROL  467 

shall  additions  to  or  improvements  of  such  property  which  increase  its 
permanent  capital  value  be  charged  to  operating  expenses,  unless  by 
express  authorization  of  the  chief  of  the  meat  division. 

ii.  Salaries. — No  unreasonably  large  or  excessive  salary  or  other 
compensation  or  bonus  paid  to  any  officer,  director,  stockholder,  firm 
member,  or  proprietor  of  licensee  shall  be  treated  as  part  of  operating 
expenses. 

II.     RULES  FOR  LICENSEES  WITH  ANNUAL  SALES  OF  LESS  THAN 

$100,000,000 

ARTICLE   II.      REGULATION   OF   PROFIT 

Section  1. — Ratio  of  profits  to  sales.  Licensee  shall  so  conduct 
his  business  that  the  profit  thereof,  or  of  that  part  thereof  not  ex- 
pressly excluded  from  this  limitation,  shall  not  exceed  two  and  one- 
half  per  cent  of  the  gross  value  of  sales. 

Section  7. — Profits — how  computed.  In  computing  his  profits 
for  the  purpose  of  Section  i,  licensee  shall  observe  the  following 
regulations: 

i.  Existing  methods  to  be  continued. — Except  as  expressly  pro- 
vided in  this  section,  or  as  hereafter  expressly  authorized  or  directed 
by  the  chief  of  the  meat  division,  licensee  shall  continue  to  compute 
the  profits  of  his  business  and  of  the  several  departments  thereof  in 
accordance  with  the  same  methods  and  principles  as  he  shall  have 
employed  during  the  twelve-month  period  preceding  November  i, 
1917;  and  he  shall  not  adopt  any  method  or  device  which  will  conceal 
or  understate  the  full  and  true  profit  thereof,  or  which  will  divert  the 
profit  properly  accruing  to  licensee  to  any  other  person  or  corpora- 
tion, or  which  will  divert  the  profit  properly  attributable  to  business 
subject  to  limitations  under  Section  i  to  business  not  so  subject. 

2.    LIVE  STOCK  AND  FEED  PRICES 


We  believe  that  definite,  stimulative  action  is  immediately  neces- 
sary if  the  pork  supply  of  the  nation  and  the  nation's  Allies  is  to  be 
sufficient  to  meet  demands. 

There  is  a  marked  feeling  of  uncertainty  evident  on  the  part  of 
the  producer.  This  is  manifest  in  the  large  number  of  unfinished 

1  Adapted  from  Report  of  Commission  A  p pointed  by  the  United  Stales  Food 
Administration  to  Investigate  the  Cost  of  Producing  Hogs.  Addressed  to  Herbert  C. 
Hoover,  October  27,  1917. 


468  ECONOMICS  OF  WAR 

hogs  now  going  to  market.  There  is  a  big  tendency  to  market 
potential  breeding  stock — breeding  stock  that  is  essential  to  further 
increase.  The  feeling  of  unrest  and  uncertainty  on  the  part  of  the 
producer  is  greatly  accentuated  by  the  recent  marked  drop  in  price 
of  live  hogs.  First  and  above  all,  confidence  should  be  instilled  so 
that  producers  will  feel  that  when  their  hogs  are  finished  for  market 
they  will  sell  at  a  fair  price — at  least  sufficient  to  cover  the  actual 
cost  of  production  and  a  fair  profit. 

The  Commission  finds  that  the  approximate,  equivalent  value 
of  twelve  bushels  of  No.  2  corn  is  necessary  to  produce  100  pounds 
of  average  live  hog  under  average  farm  conditions. 

We  further  believe  that  the  equivalent  value  of  at  least  14.3 
bushels  of  corn  must  be  paid  for  100  pounds  of  average  hog  in  order 
that  production  may  be  stimulated  15  per  cent  above  the  normal. 

The  best  emergency  method  of  stabilizing  the  market  and  pre- 
venting the  premature  marketing  of  light,  unfinished  pigs  and  breeding 
stock,  we  firmly  believe,  is  to  establish  immediately  a  minimum 
emergency  price  for  good  to  select  butcher  hogs  of  $16  per  hundred 
pounds  on  the  Chicago  market.  For  the  purpose  of  immediately 
stimulating  production  of  swine  for  the  next  year,  we  recommend 
that  a  ratio  be  immediately  established  and  announced  at  once,  same 
to  go  into  effect  February  i,  1918. 

At  this  time  100  pounds  of  average  hog  is  selling  for  the  current 
equivalent  value  of  only  7  .4  bushels  of  corn.  It  is  easy  to  see  and 
fully  comprehend  why  there  has  been  a  marked  decrease  in  production' 
and  why  thousands  of  light,  immature,  and  unfinished  hogs  have  been 
or  are  being  rushed  to  market.  In  the  periods  of  heavy  loss,  the 
future  production  of  the  industry  is  threatened. 

It  is  the  emphatic  opinion  of  this  Commission  that,  to  secure 
increased  production  under  present  abnormal  conditions,  definite 
assurance  of  a  fair  price  of  hogs  should  be  given  to  producers  by  the 
Food  Administration,  and  that  the  widest  possible  publicity  be  given 
to  whatever  action  is  taken  with  reference  to  the  hog  situation. 

B' 

The  questions  raised  in  the  above  report  involve  general  prin- 
ciples of  a  very  far-reaching  character.  The  policy  recommended  has 
two  sides,  for  to  stimulate  pork  production  through  a  high  ratio 
between  the  price  of  pork  and  the  price  of  corn  means  that  more 

1  An  editorial. 


PRICES  AND  PRICE  CONTROL  469 

corn  is  fed  to  hogs  and  less  is  left  for  human  beings.  Thus  in  order 
to  be  sure  that  such  stimulation  is  wise  we  must  be  sure  not  only 
that  more  pork  is  needed  but  that  it  is  needed  more  than  the  corn 
(and  anything  else  having  an  alternative  use  that  goes  to  the  making 
of  a  hog)  is  needed  for  other  purposes. 

In  order  to  send  more  wheat  to  the  Allies  the  American  people 
are  required  to  eat  more  corn  and  other  grains,  but  the  1917  corn 
crop  was  much  of  it  "soft"  and  unmarketable.  Under  such  circum- 
stances we  could  not  feed  more  of  the  good  corn  to  people  and  at  the 
same  time  feed  more  to  hogs  and  beef  cattle.  Since  corn  is  used 
most  largely  in  the  later  stages  of  live-stock  raising,  what  seems  to 
be  needed  is  the  raising  of  more  hogs  and  cattle,  without  attempting 
to  fatten  them  to  the  very  heavy  weights.  A  study  of  cost  of  pro- 
duction in  terms  of  corn  throws  light  on  how  to  stimulate  corn  feeding, 
but  it  needs  a  different  kind  of  study  to  tell  how  to  minimize  corn 
feeding  and  still  stimulate  production  as  much  as  possible. 

Prices  of  live  stock  must  be  high  to  stimulate  production.  If 
corn  and  other  grains  are  to  be  partly  diverted  from  live-stock 
feeding  and  used  as  human  food,  the  consumer  must  bid  against  the 
live-stock  feeder,  and  that  means  paying  a  high  price.  If  the  stock 
feeders  against  whom  the  consumer  is  competing  have  behind  them 
a  guarantee  of  a  ratio  of  hog  price  to  corn  price  that  will  make  their 
business  profitable  no  matter  how  much  they  pay  for  corn,  and  if  the 
price  of  corn  is  not  limited,  the  consumer  might  be  forced  to  bid 
almost  any  amount  without  in  the  end  getting  any  more  corn  than  before, 
because  his  competitor's  bidding  power  would  be  absolutely  unlimited. 
Hence  the  project  of  a  fixed  ratio  between  corn  and  hogs  appears 
unwise  and  will  probably  not  be  carried  out. 

In  general,  the  Food  Administration  has  given  assurance  that  it 
will  pay  high  enough  prices  for  hogs  and  cattle  to  make  production 
profitable,  with  the  understanding  that  it  does  not  guarantee  a  profit 
on  the  operation  of  buying  in  the  market  light  animals  to  be  fattened 
with  corn. 

3.     SOME  CASES  OF  PRICE  CONTROL1 
i.  Copper. — The  first  important  regulatory  action  of  the  War 
Industries  Board  was  fixing  the  price  of  copper.    The  statement 
issued  September  20,  1917,  in  regard  to  this  action  is  as  follows: 

1  By  Charles  R.  Van  Hise  (see  p.  445).  Adapted  from  Conservation  and  Regu- 
lation in  the  United  States  during  the  World  War.  Prepared  for  the  United  States 
Food  Administration. 


470  ECONOMICS  OF  WAR 

After  investigation  by  the  Federal  Trade  Commission  as  to  the 
cost  of  producing  copper,  the  President  has  approved  an  agreement 
made  by  the  War  Industries  Board  with  the  copper  producers  fixing 
a  price  of  twenty- three  and  one-half  cents  per  pound  f.o.b.  New  York, 
subject  to  revision  after  four  months.  Three  important  considerations 
were  imposed  by  the  board:  First,  that  the  producers  would  not  reduce 
the  wages  now  being  paid,  notwithstanding  the  reduction  in  the  price 
of  copper,  which  would  involve  a  reduction  in  wages  under  the  "  slid- 
ing scale"  so  long  in  effect  in  the  copper  mines;  second,  the  operators 
shall  sell  to  the  Allies  and  the  public  copper  at  the  same  price  paid 
by  the  government,  and  will  take  the  necessary  measures,  under  the 
direction  of  the  War  Industries  Board,  for  the  distribution  of  the 
copper  and  to  prevent  it  from  falling  into  the  hands  of  speculators 
who  would  increase  the  price  to  the  public;  and  third,  the  operators 
pledge  themselves  to  exert  every  effort  necessary  to  keep  up  the 
production  of  copper  to  the  maximum  of  the  past,  so  long  as  the 
war  lasts. 

2.  Iron  and  steel. — After  prolonged  conferences  with  the  manu- 
facturers of  iron  and  steel,  the  War  Industries  Board  and  the  steel 
men  agreed  on  maximum  prices  for  a  number  of  commodities,  which 
agreements  were  approved  by  the  President. 

In  connection  with  the  above,  the  iron  and  steel  manufacturers 
have  agreed  to  adjust  the  maximum  prices  of  all  iron  and  steel  prod- 
ucts other  than  those  upon  which  prices  have  been  agreed,  to  the 
same  general  standard  as  those  which  have  been  announced. 

In  fixing  maximum  prices  it  was  stipulated,  as  in  the  case  of 
copper,  first,  that  there  should  be  no  reduction  in  the  present  rate 
of  wages;  second,  that  the  prices  above  named  should  be  made  to 
the  public  and  to  the  Allies,  as  well  as  to  the  government;  and  third, 
"ftiat  the  steel  men  pledge  themselves  to  exert  every  effort  necessary 
to  keep  up  the  production  to  the  maximum  of  the  past,  as  long 
as  the  war  lasts. 

By  the  secretary  of  the  War  Industries  Board,  Lieutenant  Bing- 
ham,  I  am  informed  that  the  agreements  entered  into  with  regard  to 
copper  and  iron  are  handled  in  the  following  manner: 

"The  Raw  Materials  Division  of  the  War  Industries  Board  has 
appointed  a  Director  of  Copper  Supply  and  a  Director  of  Steel  Supply. 
The  copper  and  steel  interests  have  appointed  Trade  Committees 
who,  under  the  supervision  of  the  directors  each  in  his  department, 
allocate  government  orders  in  the  various  trades  and  use  their  influence 


PRICES  AND  PRICE  CONTROL  471 

to  prevent  purchases  being  made  by  either  department  or  by  an  indi- 
vidual outside  of  the  government  at  prices  above  those  agreed  to  by 
their  industry. 

"Should  any  individual  or  corporation  sell  any  of  the  articles 
upon  which  a  price  has  been  fixed  at  prices  above  those  fixed,  the 
Trade  Committee  can  use  its  influence  to  secure  the  reduction  of  that 
price  to  the  fixed  price,  or  if  necessary  can  call  upon  the  War  Industries 
Board  which,  through  its  priority  Division,  can  be  able  to  bring 
sufficient  pressure  to  bear  on  the  seller  to  cause  him  to  come  into  line. 
There  has  been  very  little  trouble  of  this  kind  and  likewise  very  little 
material  sold  at  the  prices  fixed  as  yet,  due  to  the  fact  that  all  pro- 
ducers of  copper  and  steel  were  sold  ahead  at  old  prices  for  a,  consider- 
able period." 

The  War  Industries  Board  derives  its  power  from  the  Council  of 
National  Defense,  and  that  Council  has  no  authority  whatever  to 
compel  agreement  in  fixing  prices. 

In  agreeing  to  fix  lower  prices  than  had  prevailed,  these  men 
were  doubtless  moved  by  patriotic  motives.  However,  the  facts 
recited  show  that  the  prices  to  which  they  have  agreed  are  such  as  to 
give  them  great  profits  beyond  those  which  have  obtained  antecedent 
to  the  war,  even  when  allowance  is  made  for  large  deductions  from 
these  profits  because  of  the  excess  war  tax. 

It  should  be  remembered  that  the  War  Industries  Board,  in 
acting  for  the  public  in  fixing  prices,  was  obliged  to  take  into  account 
the  shortage  of  steel  and  the  necessity  of  the  largest  possible  pro- 
duction. They  were  obliged  to  agree  to  a  price  which  allows  a  profit 
sufficient  for  practically  all  of  the  furnaces  and  mills  of  the  country 
to  operate.  Also  in  those  industries  in  which  there  has  been  no 
governmental  regulation  or  agreements  regarding  prices,  profits 
have  been  much  larger  than  before  the  war;  and  it  was  necessary 
to  take  this  fact  into  account.  A  reduction  in  prices  which  in  itself 
was  a  gain  was  accomplished. 

While  the  arrangements  regarding  prices  were  amicably  made, 
it  should  be  remembered  that  the  public  pressure  for  fair  prices  for 
iron  and  steel  was  supported  by  the  threat  of  legislation,  at  least  so 
far  as  iron  was  concerned. 

3.  Coal. — (a)  Principles  invoked.  The  Fuel  Administration  has 
the  problem  of  fixing  the  price  of  coal  sufficiently  high  so  that  there 
will  be  a  large  production,  without  going  to  a  price  that  will  make  it 
possible  for  the  very  poor  small  mine,  remote  from  facilities,  to  operate. 


472  ECONOMICS  OF  WAR 

If  the  price  were  fixed  high  enough  so  that  all  of  these  could  work, 
this  would  result  in  taking  from  the  public  many  millions  of  dollars 
which  should  not  be  paid.  The  problem  is  to  strike  the  nice  balance 
which  will  result  in  the  greatest  benefit  to  the  people  of  the  United 
States;  a  price  high  enough  so  that  there  shall  be  increased  production 
over  that  of  previous  years,  but  nqt  so  high  as  to  place  too  heavy  a 
burden  of  cost  upon  the  people. 

In  fixing  the  prices  for  bituminous  coal  it  is  to  be  noted  that  a 
different  principle  has  been  followed  from  that  used  in  connection  with 
wheat  by  the  Food  Administration.  For  wheat  a  basis  is  fixed  for  a 
certain  quantity  of  wheat  at  the  central  interior  markets,  and  prices 
for  other  grades  and  for  other  localities  depend  upon  well-recognized 
differentials  due  to  quality  and  transportation.  The  only  deviation 
from  this  principle  for  wheat  is  that  of  California.  The  price  there 
was  fixed  at  a  higher  rate  than  was  required  under  these  principles. 

However,  in  the  case  of  coal,  the  plan  of  the  Fuel  Administration 
has  been  to  fix  the  price  so  that  each  operator  shall  receive  a  limited 
profit.  Hence  the  price  is  relatively  low  for  coal  from  the  thick  seams, 
easily  and  cheaply  mined,  and  high  for  the  thin  and  poor  seams  from 
which  it  is  more  expensive  to  mine. 

The  difficulty  of  the  problem  may  be  illustrated  by  the  very  small 
mine  which  under  ordinary  circumstances  would  not  be  able  to  operate. 
Many  of  these  properties  do  not  even  have  railroad  facilities;  these 
are  known  as  "wagon  mines."  In  consequence  of  their  lack  of  facil- 
ities they  cannot  produce  coal  as  cheaply  as  the  larger  mines  with 
better  facilities;  hence  if  they  are  operated  at  all,  it  is  necessary  for 
them  to  receive  a  high  price  for  their  product,  which  is  no  better, 
indeed  is  likely  to  be  on  the  average  poorer,  than  that  from  the  large 
mines. 

While  differences  in  prices  exist  for  like  products  in  the  same 
districts,  it  has  been  the  aim  of  the  Fuel  Administration  not  to  make 
the  differentials  greater  than  necessary  in  order  to  secure  a  great 
production.  The  larger  part  of  the  variations  in  the  prices  announced 
for  bituminous  coals  are  due  to  difference  in  quality  of  the  coal  and  to 
freight  differentials. 

The  fact  that  a  ton  of  coal  from  different  mines  having  the  same 
thermal  capacity  may  be  sold  at  variable  prices  has  occasioned  no 
especial  difficulty,  because  there  is  a  greater  demand  for  coal  than 
can  be  met,  and  consumers  readily  pay  a  price  necessary  to  secure  the 
coal. 


PRICES  AND  PRICE  CONTROL  473 

The  practice  followed  is  in  complete  contravention  to  economic 
theories  accepted  before  the  war.  If  a  mine  were  rich  and  con- 
veniently located  it  gained  a  much  larger  profit  per  ton  than  did  the 
poor  mine  badly  located.  The  owner  of  the  better  property  gained 
all  the  advantages  of  cheapness  of  operation  and  convenience  in 
transportation.  Even  with  the  prices  fixed  this  is  still  the  situa- 
tion .to  a  considerable  extent,  but  the  effect  of  the  price-fixing  is 
to  reduce  the  differences  between  the  gains  of  the  rich  and  the  poor 
mine. 

Under  the  fuel  law  another  method  of  attack  would  have  been 
possible.  The  law  authorized  the  government  to  be  the  exclusive 
buyer  and  seller  of  the  coal  of  the  country.  Had  this  authority  been 
used,  the  coal  mined  would  have  been  sold  to  the  Fuel  Administrator 
at  a  fair  profit  for  each  operator.  The  coal,  then  the  property  of  the 
Fuel  Administration,  could  have  been  pooled  and  sold  at  prices 
dependent  upon  its  value,  taking  into  account  its  thermal  power,  its 
other  qualities,  and  its  position  in  the  country  in  regard  to  freight  and 
demand,  the  prices  being  fixed  so  as  to  return  to  the  Fuel  Adminis- 
tration its  cost  with  a  sufficient  amount  to  cover  administration. 
Indeed,  this  was  the  plan  of  the  Federal  Trade  Commission,  except 
that  the  plans  of  the  Commission  went  even  farther  and  required  the 
operation  of  the  mines. 

Had  this  suggested  procedure  been  followed,  the  inequality  of 
cost  of  the  same  quality  of  coal  at  the  same  place  would  have  been 
avoided.  However,  the  Fuel  Administration  would  have  had  the 
extremely  difficult  problem  of  determining  the  cost  of  the  production 
of  coal  at  each  mine,  dependent  as  this  is  upon  so  many  complex 
factors,  including  the  cost  of  labor,  reduction  of  the  value  of  the  mines 
due  to  extractions  of  material,  the  depreciation  of  permanent  property, 
the  interest  on  the  investments,  etc. 

The  method  would  also  have  placed  upon  the  Fuel  Administration 
the  entire  burden  of  apportioning  and  marketing  the  coal,  a  gigantic 
undertaking.  While,  therefore,  the  method  of  buying  coal  by  the 
government  and  pooling  the  same  might  be  theoretically  advan- 
tageous, its  difficulties  were  such  that  the  alternative  of  price-fixing 
was  chosen. 

(b)  Jobbers'  margins.  Operators  who  maintain  their  own  sales 
department,  whether  in  their  own  name  or  under  a  separate  name,  and 
dispose  of  coal  directly  to  the  dealer  or  consumer,  shall  not  charge  any 
jobber's  commission.  A  jobber  must  be  entirely  independent  of  the 


474  ECONOMICS  OF  WAR 

operator,  in  fact  as  well  as  in  name,  in  order  to  be  entitled  to  charge  a 
jobber's  commission. 

Free  coal  shipped  from  the  mines  subsequent  to  the  promulgation 
of  the  President's  order  fixing  the  price  for  such  coal  shall  reach  the 
dealer  at  not  more  than  the  price  fixed  by  the  President's  order,  plus 
only  the  prescribed  jobber's  commission  (if  the  coal  has  been  pur- 
chased through  a  jobber)  and  transportation  charged. 

A  jobber  who  had  already  contracted  to  buy  coal  at  the  time  of  the 
President's  order  fixing  the  price  of  such  coal,  and  who  was  at  that 
time  already  under  contract  to  sell  the  same,  may  fill  his  contract  to 
sell  at  the  price  named  therein. 

(c)  Retail  margins.  On  October  i  it  was  ordered  that  the  gross 
margins  for  the  retailer  of  any  size  or  grade  of  coal  or  coke  for  each 
class  of  business  shall  not  exceed  the  average  gross  margin  added  by 
such  dealer  for  the  same  size  or  grade  for  each  class  of  business  during 
the  calendar  year  1915,  plus  30  per  cent  of  said  retail  gross  margin 
for  the  calendar  year  1915;  provided,  however,  that  the  retail  gross 
margin  added  by  any  retail  dealer  shall  in  no  case  exceed  the  average 
added  by  such  dealer  for  the  same  size,  grade,  and  class  of  business 
during  July,  1917.  This  margin  is  the  maximum  and  the  retailer  may 
accept  smaller  margins.  It  gives  dealers  no  price-incentive  to 
conserve  coal,  rather  to  speed  up  their  turnover  and  keep  stocks  as. 
narrow  as  possible. 

4.    FORMS  OF  CONTRACTS 

INTRODUCTION 

This  subject  has  received  practically  no  attention  from  econo- 
mists. The  war  is  bringing  it  into  the  foreground  for  various  reasons, 
(i)  When  perhaps  one-fourth  or  one-third  of  the  nation's  work  is 
being  done  for  the  government,  the  question  becomes  obviously  a 
public  one  where  before  it  had  been  primarily  a  private  business 
affair  the  public  importance  of  which  it  was  easy  to  forget.  (2)  Forms 
of  contracts  react  on  the  efficiency  with  which  the  work  is  done,  and 
this  is  no  longer  regarded  as  a  purely  private  concern  of  the  two  parties 
to  the  contract  and  no  one  else.  It  has  become  a  matter  of  vital 
national  interest,  or  rather,  its  national  importance  has  been  more 
vividly  realized.  (3)  Forms  of  contract  react  on  rates  of  wages  and 
prices  of  materials  and  other  goods,  and  these  the  nation  is  already 
trying  to  control  and  mold  into  a  unified  scheme. 


PRICES  AND  PRICE  CONTROL  475 

I.      NEEDS   OF   THE   SITUATION   IN  THE   EARLY   STAGES   OF   WAR 

War  work  done  in  the  midst  of  rapidly  rising  prices  and  wages  and 
general  disturbance  calls  for  forms  of  contracts  that  will, 

1.  Give  the  contractor  reasonable  security  against  big  upward 
movement  in  wages  and  prices  of  materials. 

2.  Adapt  itself  to  possible  unforeseen  changes  in  the  amount  and 
kind  of  work  called  for — to  "extras"  which  may  be  found  necessary 
after  the  contract  has  been  placed. 

3.  Furnish  an  incentive  to  reasonable  economy — an  incentive  of 
a  sort  that  shall  (a)  stop  short  of  putting  the  contractor  under  undue 
pressure  to  skimp  in  ways  that  might  injure  the  quality  of  his  work ; 
(6)  be  independent  of  competitive  bidding;    (c)  be  automatic  in  its 
action  and  not  dependent  on  government  oversight  to  check  waste. 

The  first  requirement  needs  no  explanation.  It  calls  for  some 
form  of  contract  which  assures  the  contractor  that  all  his  costs  will 
at  least  be  covered,  in  all  cases  where  they  cannot  be  (a)  foreseen  with 
reasonable  accuracy;  (b)  prevented  from  changing  by  the  contractor 
getting  options  on  materials  or  buying  them  in  advance;  (c)  prevented 
from  changing  by  public  control  of  wages  and  prices;  (d)  compensated 
for  in  some  other  way. 

The  second  requirement  may  be  met  by  fixing  unit  prices  for  all 
the  different  sorts  of  work  that  are  called  for,  and  adding  prices  for 
possible  extras  so  far  as  it  can  be  foreseen  that  contingencies  may  arise 
in  which  they  will  be  called  for.  For  any  work  not  covered  by  the 
lists  of  possible  extras,  terms  could  be  left  open,  to  be  adjusted  on  a 
reasonable  basis  as  the  contingency  might  arise.  Such  a  method  as 
this,  however,  can  be  satisfactory  only  to  the  extent  that  disturbances 
of  prices  and  wages  have  been  adequately  taken  care  of  in  some 
other  way. 

The  third  requirement,  that  of  a  reasonable  incentive  to  economy, 
is  of  crucial  importance,  (a)  Lump-sum  contracts  may  give  an  undue 
incentive  to  parsimony  in  doing  the  work,  and  where  this  cannot 
be  adequately  checked  by  inspections  and  tests,  this  form  of  contract 
may  lead  to  harmful  results.  This  is  especially  true  when  unforeseen 
changes  in  costs  put  the  contractor  in  danger  of  making  an  absolute 
loss,  for  a  man  will  give  short  measure  to  avoid  a  loss  when  he  would 
scorn  to  do  so  merely  to  increase  his  profits.  If  the  margin  has  been 
cut  very  fine  in  competitive  bidding  the  danger  is  increased,  this 
being  one  of  the  bad  results  of  fixing  a  competitive  price  on  something 
that  is  not  yet  made,  so  that  its  quality  is  still  to  be  determined  within 


476  ECONOMICS  OF  WAR 

limits  set  by  specifications  and  inspection.  Even  where  the  contractor 
is  in  no  danger  of  absolute  loss  he  still  pockets  the  entire  amount 
saved  by  economy  or  by  parsimony. 

The  first  Quebec  Bridge,  which  fell  in  1907,  was  built  under  this 
form  of  contract,  and  the  members  were  made  so  light  that  engineers 
were  astounded  when  the  strain  sheet  was  made  public.  The  investi- 
gating commission  found  that  the  bridge  would  have  had  to  be  con- 
demned, even  if  it  had  not  collapsed  during  construction.  Where  the 
lives,  health,  and  safety  of  soldiers,  sailors,  and  workmen  depend  on 
the  thoroughness  with  which  work  is  done,  builders  and  manufacturers 
must  be  liberal  in  the  essentials  of  quality  and  contracts  must  be  so 
drawn  that  they  can  afford  to  be.  The  specifications  for  govern- 
ment work  are  not  and  cannot  be  made  so  infallible  and  prophetic  as 
to  provide  for  everything,  and  if  they  could,  inspection  would  still  be 
fallible. 

Under  a  fixed-price  contract  the  contractor  is  under  no  great 
stimulus  to  let  the  quality  of  his  work  exceed  the  letter  of  the  require- 
ments. If  he  does,  the  expense  is  so  much  loss  to  him.  This  contract 
is  best  suited  to  thoroughly  standardized  articles  which  do  not  take 
too  long  to  make,  so  that  prices  can  be  revised  for  the  future,  if  con- 
ditions require  it,  without  making  the  revision  retroactive  on  the 
one  hand,  or  on  the  other  hand  causing  ^the  contractor  serious  loss. 

(6)  Competitive  bidding  is  the  common  method  of  seeing  that  the 
government  gets  some  benefit  out  of  the  cheapness  with  which  work 
is  done  under  a  lump-sum  or  a  fixed-unit-price  contract.  Under 
very  disturbed  conditions  this  does  not  work  well,  for  two  main 
reasons,  of  which  the  government  officials  seem  to  be  well  aware. 
Such  bidding  leads  each  competing  contractor  to  try  to  secure  an 
option  on  materials  and  thus  creates  a  demand  for  options  out  of  all 
proportion  to  the  actual  demand  for  goods  from  which  it  arises.  This 
tends  to  inflate  prices  unnecessarily.  So  far  as  the  contractor  cannot 
protect  himself  against  rising  prices  by  getting  options,  he  must  seek 
protection  in  his  bid.  He  cannot  afford  to  bid  as  low  as  if  every 
contract  were  sure  to  net  exactly  the  average  profit,  because  (if  he 
is  financially  responsible)  an  absolute  loss  will  hurt  him  more  than  a 
profit  of  the  same  amount  will  help  him.  Those  who  have  to  do 
with  contracts  say  that  under  such  conditions  the  bids  are  so  high  that 
the  work  is  made  more  expensive  by  this  form  of  competition. 

(c)  If  the  form  of  contract  does  not  in  itself  furnish  an  incentive 
to  economy  it  is  hard  for  government  inspection  to  bring  it  about 


PRICES  AND  PRICE  CONTROL  477 

directly  and  maintain  the  quality  of  products.  If  glaring  cases  of 
disorganization,  padded  payrolls,  or  lack  of  obvious  business  method 
and  system  are  found,  something  can  be  done,  but  in  the  early  stages 
of  putting  a  peaceful  and  individualistic  democracy  on  a  war  footing, 
conditions  are  so  confused  that  methods  of  production  cannot  be 
standardized  beyond  a  certain  elementary  minimum.  For  economy 
beyond  this  minimum  reliance  must  be  put,  largely,  either  on  patriot- 
ism or  on  a  financial  incentive  or  on  both  together. 

II.      FORM  OF  CONTRACT  ADAPTED  TO  THESE  NEEDS:    A  SIMPLE  BASIS 
FOR   ECONOMY-SHARING  CONTRACTS 

The  simplest  way  to  meet  the  difficulty  of  rising  prices  and  wages 
is  by  some  form  of  cost-plus  contract.  At  present  those  interested  in 
contracting  are  advocating  the  increased  use  of  such  contracts,  largely 
for  this  reason,  but  also  because  of  dissatisfaction  with  the  results  of 
competitive  bidding  on  fixed-price  contracts.  If  such  a  contract  is 
combined  with  an  economy-sharing  feature,  it  will  furnish  a  stimulus 
to  economy  without  carrying  it  to  such  unhealthy  lengths  as  does  a 
system  under  which  the  contractor  runs  a  serious  risk  of  not  covering 
his  actual  expenses.  Such  an  incentive  to  economy  has  the  special 
advantage  that  it  does  not  depend  in  any  way  on  competitive  bidding, 
though  competitive  bidding  may  be  used,  if  desired,  without  forcing 
the  contractors  to  get  options  ahead  in  order  to  protect  their  costs  and 
so  inflating  the  costs  unnecessarily  in  the  way  already  mentioned. 
The  simplest  basis  for  such  a  contract  would  be  this:  the  contractor 
should  receive  his  costs,  plus  some  fraction,  say  one-third,  of  the 
amount  by  which  cost  falls  short  of  an  agreed  sum,  but  in  no  case  less 
than  a  specified  minimum  lump  sum  in  excess  of  cost.  This  has  been 
recommended  by  the  United  States  Department  of  Commerce. 

III.      COST-PLUS-LUMP-SUM  CONTRACTS 

Many  government  contracts  appear  to  have  been  let  on  this 
basis.  While  not  affording  a  positive  incentive  to  economy,  it  avoids 
offering  a  positive  incentive  to  waste.  The  United  States  Depart- 
ment of  Commerce,  in  recommending  this  form  of  contract,  urges  that 
it  be  combined  with  the  economy-sharing  feature. 

IV.      CONTRACTS   SUBJECT  TO  REVISION 

It  is  possible  to  let  a  contract  without  specifying  the  price,  leaving 
this  to  be  determined  later.  Or  contracts  can  be  let  at  a  specified 
price  subject  to  revision  in  case  conditions  change  so  as  to  call  for  it. 


478  ECONOMICS  OF  WAR 

Where  the  contractor  has  confidence  in  the  reasonableness  of  the 
government's  agents,  such  contracts  may  work  well.  The  spirit  of 
co-operation  which  prevails  in  many  quarters  is  probably  an  adequate 
basis  on  which  to  make  many  contracts  of  this  kind,  but  they  cannot 
meet  all  cases. 

V.      COST-PLUS-PERCENTAGE   CONTRACTS 

The  basic  disadvantage  of  such  contracts  is  obvious — the  more 
the  work  costs,  the  bigger  are  the  profits.  This  is  clearly  against  all 
business  principles,  and  is  never  really  necessary,  no  matter  what  the 
character  of  the  work.  If  the  contractor  is  patriotic  enough  to  want 
to  see  government  work  done  as  efficiently  and  economically  as 
possible,  such  a  contract  puts  his  patriotism  at  war  with  his  pocket- 
book  and  makes  it  cost  him  money  to  indulge  in  that  virtue.  It 
implies  no  slur  on  the  patriotism  of  contractors  to  wish  to  see  it 
relieved  of  this  burden. 

The  profits  on  such  a  contract  can  be  increased  in  many  ways: 

1.  By  padding  the  salary  roll.    This  has  been  charged  more  than 
once. 

2.  By  yielding  to  demands  for  increased  wages.     Hence  every 
holder  of  such  a  contract  becomes  fair  game  for  such  demands.    It  is 
not  easy  to  refuse  a  man  what  costs  you  less  than  nothing.     It  has 
been  noted  that  the  letting  of  such  contracts  is  the  signal  for  demands 
from  all  concerned. 

3.  By  encouraging  labor  to  demand  more  than  it  otherwise  would 
have  demanded.     Some  observers  have  thought  they  detected  a  more 
than  ordinarily  sympathetic  attitude  of  employers  toward  the  em- 
ployees in  the  matter  of  the  outcome  of  wage  awards. 

4.  By  limiting  the  output  of  labor.    This  is  said  to  have  been  done 
by  action  of  the  employer  under  a  cost-plus-percentage  contract. 

5.  By  paying  liberal  prices  for  materials. 

6.  By  wasteful  use  of  materials. 

7.  By  hiring  an  unnecessarily  large  working  force,  both  salaried 
staff  and  wage  earners. 

8.  By  accepting  poor  material,  causing  increased  costs  in  work- 
ing it. 

9.  By  inadequate  maintenance  or  operation  of  parts  of  the  equip- 
ment, leaving  the  worker  with  an  imperfect  machine  or  tool  to  work 
with  (e.g.,  if  air-pressure  for  pneumatic  riveters  were  to  fall  below 
normal  for  some  reason  it  might  be  a  source  of  profit  rather  than  of  loss). 


PRICES  AND  PRICE  CONTROL  479^ 

10.  By  holding  railroad  cars  and  accumulating  unnecessary  demur- 
rage charges. 

11.  Even  wasteful  routing  of  freight,  heinous  as  that  seems  under 
present  conditions,  would  be  a  profitable  policy  under  this  form  of 
contract. 

There  is  no  justification  for  putting  contractors  at  such  a  dis- 
advantage in  their  attempts  to  secure  reasonable  terms  from  labor 
unions  and  sellers  of  materials;  neither  does  the  patriotism  of  the 
majority  justify  using  a  form  of  contract  under  which  the  minority 
can  profit  by  policies  running  all  the  way  from  positive  fraud  and 
collusion  in  swelling  expenses  to  such  impalpable  things  as  failure  to 
use  the  utmost  vigilance  and  system  in  organizing  the  work  and  in 
keeping  the  inevitable  wastes  of  such  work  down  to  the  lowest  prac- 
ticable level. 

VI.      CONCLUSION 

Different  kinds  of  contracts  will  always  be  suited  to  different 
kinds  of  work,  and  no  one  form  that  would  be  best  for  all  purposes 
can  be  selected.  The  fixed-price  form  is  the  simplest,  and  to  the 
extent  that  the  government  succeeds  in  stabilizing  wages  and  the 
prices  of  metals  and  other  basic  materials,  this  form  of  contract 
becomes  easier  to  use,  especially  if  the  manufacturers  themselves  are 
getting  their  methods  standardized  and  their  costs  in  labor  and 
materials  reasonably  uniform  and  predictable. 


XII 


Introduction 

It  has  become  increasingly  clear,  as  the  war  has  been  prolonged, 
that  the  issue  of  the  conflict  largely  rests  in  the  hands  of  the  humble 
toiler  back  of  the  lines — every  phase  of  military  effort  being  funda- 
mentally dependent  upon  the  whole-hearted  support  of  labor.  The 
laboring  man  himself  was  one  of  the  first  to  learn  this  lesson,  and  with 
ever-growing  confidence  he  has  raised  his  head  and  spoken  with  a 
new-found  dignity.  And  more  and  more  the  responsible  governments 
of  the  world  have  harkened  to  the  voice  of  labor  in  the  counsels  of 
nations.  It  is  now  a  common  saying  that  the  war  has  meant  the 
emancipation  of  labor  and  that  we  have  already  entered  upon  a  new 
era  of  industrial  democracy. 

The  selections  in  this  chapter  touch  only  the  high  spots  in  the 
relationship  of  labor  to  the  war.  The  first  section  is  designed  to 
indicate  the  task  that  confronted  non-militaristic  countries  at  the 
outbreak  of  the  war  in  enlisting  the  support  of  labor.  International- 
ists, syndicalists,  pacifists,  anti-imperialists,  what  not,  had  to  be 
taught  that  the  purpose  of  the  Allies  in  this  struggle  was  not  ignoble, 
but  one  that  was  in  accord  with  the  rights  and  the  aspirations  of 
common  men  everywhere.  The  second  section  shows  the  nature  of 
the  problems  that  arise  in  connection  with  the  effective  mobilization 
of  man  power.  And  the  third  division  of  the  chapter  discusses  the 
conditions  that  surround  labor  in  war  time,  together  with  the  policies 
that  are  being  formulated  to  deal  with  these  conditions  as  they 
arise. 

Whatever  be  the  ultimate  results  of  labor's  newly  acquired  posi- 
tion, it  is  certainly  not  too  much  to  say  that  we  shall  never  go  back 
to  the  chaotic  conditions  that  prevailed  before  the  war.  Many  of 
the  agencies  and  policies  that  have  been  born  of  the  war  will  become 
permanent.  And  on  every  hand  there  is  evidence  of  a  new  conception 
of  industrial  relations — a  conception  that  is  forward  looking,  that 
recognizes  that  ill-balanced  social  development  is  incompatible  with 
democratic  institutions. 

480 


LABOR  AND  THE  WAR  481 

LVII.    Attitude  of  Labor  toward  the  War  * 
i.    THE  REAL  PACIFISM  BEFORE  THE  WAR1 

I  have  reserved  for  myself  the  interesting  task  of  presenting  to  you 
our  anti-patriotic  conception  called  "Herveism."  My  role  has  been 
limited  to  interpreting  the  ideas  and  sentiments  which  I  have  seen 
spring  up  among  the  proletarian  and  peasant  class,  and  of  which  I 
have  only  been  the  doctrinaire,  the  theorizer,  and  latterly,  in  spite 
of  myself,  the  standard-bearer  and  symbol. 

These  anti-patriotic  ideas,  moreover,  are  somewhat  new  among  the 
masses  of  organized  workers.  And  like  all  new  ideas,  they  shock 
public  opinion;  they  seem  shocking  to  you.  That  was  the  fate  of 
early  Christianity,  and  also  of  the  republican  idea,  at  the  time  when 
republicans  were  regarded,  in  the  remotest  parts  of  the  country,  as 
monsters  gorged  with  blood. 

At  an  age  when  the  critical  spirit  is  not  yet  developed  in  us,  we 
hear,  as  children  at  the  family  table,  accounts  of  horrible  misdeeds 
committed  by  the  Germans  or  the  English,  or  feats  of  valor  accom- 
plished by  the  French.  The  little  Germans  at  the  same  moment 
hear  about  all  sorts  of  crimes  committed  by  the  French,  the  English, 
or  the  Russians. 

We  are  taught  that  France  is  the  land  of  the  brave,  the  country  of 
generosity  and  chivalry,  and  the  refuge  of  liberty;  the  same  things 
are  said  of  their  countries  to  the  little  Germans,  the  little  Russians, 
and  the  little  Japanese;  and  we  all,  in  the  innocence  of  our  hearts, 
believe  them. 

For  New  Year's  gifts  our  fathers,  and  even  our  mothers,  give  us 
lead  soldiers,  toy  guns,  drums,  clarions,  and  trumpets. 

And  when  this"  beautiful  education  has  already  made  us  patriots 
in  embryo,  the  school — the  secular  public  school  quite  as  much  as  the 
schools  of  the  religious  orders — puts  the  finishing  touch  to  the  work 
of  driving  patriotism  into  our  heads.  Do  you  remember  those  history 
manuals  in  which  on  every  page  some  scene  of  carnage  or  the  portrait 
of  some  warrior  was  cynically  displayed  ?  To  complete  the  work  of 
making  the  perfect  patriot,  to  poison  his  whole  system,  nothing  more 

1  By  Gustave  Herve.  The  speech  from  which  the  excerpts  here  presented  are 
taken  was  translated  from  French  into  English  and  circulated  in  this  country  by 
the  I.W.W.  as  early  as  1912. 

ED.  NOTE. — This  selection  reveals  an  attitude  toward  all  war  that  had  been 
steadily  growing  among  revolutionary  groups  in  recent  times. 


482  ECONOMICS  OF  WAR 

is  necessary  than  to  let  him  become  intoxicated  with  military  pomp, 
which  is  still  more  impressive  than  the  pomp  of  religion.  This  time 
the  impression  is  not  produced  by  priestly  vestments,  resplendent 
with  gold  and  precious  stones;  these  are  replaced  by  costumes  of 
gaudy  colors,  with  gold  lace,  plumes,  and  feathers. 

The  music  of  the  church  organs  is  replaced  by  the  still  more 
intoxicating  music  of  drums  and  trumpets. 

Instead  of  religious  processions,  we  now  have  those  imposing 
military  reviews,  which  we  have  all  run  after  in  our  time  in  order  to  see 
the  march  past,  in  the  heat  and  dust,  of  those  interminable  ranks  of 
instruments  of  slaughter  and  of  young  men,  the  flower  of  the  nation, 
marked  for  future  butcheries.  Then,  when  the  rag  on  the  end  of  a 
stick,  which  represents  the  sacred  emblem  of  the  country,  passes  by, 
a  wave  of  religious  emotion  passes  over  the  throng  of  patriots,  and  they 
devoutly  bare  their  heads,  just  as  their  great-grandfathers  bared  their 
heads  before  the  Holy  Sacrament. 

As  for  us,  the  revolutionary  socialists,  we  have  repudiated  the 
flag  on  which  are  displayed  in  letters  of  gold  the  names  of  so  many 
butcheries. 

Flags  are  only  emblems;  they  have  no  value  beyond  what  they 
represent.  What,  then,  do  we  mean  by  a  country  or  a  nation? 
What  are  all  the  countries  of  today  ? 

Allow  me,  gentlemen  of  the  jury,  to  make  use  of  an  illustration,  a 
sort  of  parable,  which  will  enable  you  better  to  understand  our 
sentiments. 

Countries — all  countries  or  nations  whatever  may  be  the  govern- 
ment ticket  with  which  they  are  labeled — are  composed  of  two  groups 
of  men,  one  by  far  the  less  numerous,  the  other  embracing  the  immense 
majority  of  the  people. 

The  first  group  is  seated  at  a  well-spread  table,  where  nothing  is 
lacking.  At  the  head  of  the  table,  at  the  place  of  honor,  are  seated 
the  great  financiers.  Some  are  Jews,  yes;  others  are  Catholics; 
others,  again,  are  Protestants  or  Freethinkers.  They  may  be  in 
disagreement  on  religious  or  philosophic  questions,  and  even  on 
questions  of  interest,  but,  as  against  the  great  mass  of  the  people  they 
work  together  like  thieves  at  a  fair. 

On  their  right  and  on  their  left  are  the  cabinet  ministers,  the 
great  officials  of  all  the  state  services — civil,  religious,  and  military — 
not  forgetting  the  paymaster-generals,  at  salaries  of  thirty,  forty, 
or  sixty  thousand  francs  a  year;  a  little  farther  away  the  Council  of 


LABOR  AND  THE  WAR  483 

the  Order  of  Advocates  and  the  gentlemen  of  the  courts  of  law,  includ- 
ing their  precious  auxiliaries,  the  solicitors,  notaries,  and  bailiffs. 

And  then  there  are  the  big  shareholders  of  the  mines,  factories, 
railways,  and  shipping  companies,  and  the  big  stores,  great  squires 
and  great  landed  proprietors,  they  are  all  at  that  table;  all  those  who 
have  only  a  few  sous  are  there  also,  at  the  end  of  the  table;  they  are 
the  small  fry,  who  have,  however,  all  the  prejudices  and  all  the 
conservative  instincts  of  the  big  capitalists. 

Far  away  from  that  table  I  perceive  a  herd  of  beasts  of  burden, 
condemned  to  forbidding,  dirty,  dangerous,  and  mindless  toil,  without 
respite  or  repose,  and,  above  all,  without  security  for  the  morrow; 
small  tradesmen,  nailed  to  their  counters  on  Sundays  and  holidays, 
and  more  and  more  crushed  out  every  day  by  the  competition  of  the 
big  stores;  small  industrial  employers,  ground  out  of  existence  by  the 
competition  of  the  big  factory  owners;  small  peasant  proprietors, 
brutalized  by  long  hours  of  labor,  sixteen  to  eighteen  hours  a  day,  and 
only  working  to  enrich  the  big  middlemen,  flour  merchants,  wine 
agents,  and  sugar  refiners.  Still  farther  off  from  the  table  of  the 
prosperous  I  see  the  great  mass  of  the  proletarians,  those  who  for  their 
whole  fortune  have  only  their  arms  and  their  brains — working  men 
and  women  of  the  factory,  exposed  to  long  periods  of  unemployment; 
petty  officials,  clerks,  and  other  employes,  obliged  to  bow  their  heads 
and  hide  their  opinions;  domestic  servants  of  both  sexes,  flesh  for 
toil,  flesh  for  cannon,  flesh  for  lust. 

Behold  your  countries! 

Monstrous  social  inequality,  monstrous  exploitation  of  man  by 
man;  that  is  what  a  country  is  nowadays,  and  that  is  what  the  workers 
take  off  their  hats  to  when  the  flag  is  carried  by. 

If  tomorrow  your  financiers  and  your  diplomats  were  unable  to 
come  to  terms  with  those  of  Germany,  your  patriotism  (at  8  per  cent !) 
would  be  only  too  happy  to  see  us,  the  French  and  German  workers, 
marching  against  each  other,  butchering  each  other  by  the  hundred 
thousand,  in  order  to  find  out  whether  Morocco  should  belong  to  the 
capitalists  of  Paris  or  to  those  of  Berlin. 

We  know,  as  you  see,  the  mysterious  and  interested  sources  of 
your  patriotism.  Yes,  you  are  quite  right,  from  your  point  of  view, 
in  trying  to  cultivate  among  the  enslaved  workers  the  worship  of  your 
countries  and  of  your  flags;  to  maintain  the  domination  of  your  class 
you  are  well-advised  in  propagating  among  the  masses  these  patriotic 
sentiments  which  veil  class  antagonisms  and  make  the  sheep  believe 


484  ECONOMICS  OF  WAR 

that  they  are  of  the  same  race,  the  same  family,  and  the  same  country 
as  the  wolves  who  devour  them. 

For  us  there  are  only  two  countries  in  the  world — that  of  the 
privileged  and  that  of  the  disinherited,  or  rather  that  of  the  con- 
servatives and  that  of  the  rebels,  whatever  language  they  may  speak, 
or  whatever  the  land  may  be  which  chanced  to  give  them  birth.  Our 
compatriots  are  not  the  capitalists  here,  who  would  have  us  massacred 
if  they  could,  just  as  they  massacred  our  fathers  in  the  Commune. 
Our  compatriots  are  the  conscious  proletarians,  the  socialists,  the 
revolutionaries  of  the  whole  world,  who  wage  everywhere  the  same 
battle  as  ourselves  for  the  establishment  of  a  better  society.  And  in 
full  agreement  with  them  we  only  await  the  opportunity  in  this 
Europe,  where  the  railways,  the  telegraph,  cheap  newspapers,  and 
the  same  capitalist  system  have  suppressed  distance  and  rendered 
uniform  the  conditions  of  life,  to  found  that  free  European  federation, 
prelude  to  the  great  human  federation  in  which  the  countries  of  today 
will  be  absorbed,  just  as  the  ancient  provinces  became  absorbed  in  the 
France,  England,  and  Germany  as  we  know  them  now. 

2.    ATTITUDE  ON  THE  EVE  OF  HOSTILITIES1 

A.      MANIFESTO   TO   THE   BRITISH  PEOPLE2 

The  long-threatened  European  war  is  now  upon  us.  For  more 
than  one  hundred  years  no  such  danger  has  confronted  civilization. 
It  is  for  you  to  take  full  account  of  the  desperate  situation  and  to  act 
promptly  and  vigorously  in  the  interest  of  peace.  You  have  never 
been  consulted  about  the  war. 

Whatever  may  be  the  rights  and  wrongs  of  the  sudden,  crushing 
attack  made  by  the  militarist  Empire  of  Austria  upon  Servia,  it  is 
certain  that  the  workers  of  all  countries  likely  to  be  drawn  into  the 
conflict  must  strain  every  nerve  to  prevent  their  governments  from 
committing  them  to  war. 

Everywhere  Socialists  and  the  organized  forces  of  labour  are 
taking  this  course.  Everywhere  vehement  protests  are  made  against 
the  greed  and  intrigues  of  militarists  and  armament-mongers. 

1  ED.  NOTE. — These  selections,  consisting  of  manifestoes  and  opinions,  have 
been  compiled  by  G.  D.  H.  Cole,  in  Labour  in  War  Time,  pp.  24-59.     Published 
by  G.  Bell  and  Sons,  Ltd.,  London,  1915.    The  authorities  for  the  statements  are 
duly  indicated. 

2  Issued  August  i,  1914,  by  the  British  Section  of  the  International  Socialist 
Bureau. 


LABOR  AND  THE  WAR  485 

We  call  upon  you  to  do  the  same  here  in  Great  Britain  upon  an 
even  more  impressive  scale.  Hold  vast  demonstrations  against  war 
in  every  industrial  center.  Compel  those  of  the  governing  class  and 
their  press  who  are  eager  to  commit  you  to  co-operate  with  Russian 
despotism  to  keep  silence  and  respect  the  decision  of  the  overwhelm- 
ing majority  of  the  people,  who  will  have  neither  part  nor  lot  in  such 
infamy.  The  success  of  Russia  at  the  present  day  would  be  a  curse 
to  the  world. 

There  is  no  time  to  lose.  Already,  by  secret  agreements  and 
understandings,  of  which  the  democracies  of  the  civilized  world  know 
only  by  rumour,  steps  are  being  taken  which  may  fling  us  all  into  the 
fray. 

Workers,  stand  together  therefore  for  peace!  Combine  and 
conquer  the  militarist  enemy  and  the  self-seeking  Imperialists  to-day, 
once  and  for  all. 

Men  and  women  of  Britain,  you  have  now  an  unexampled  oppor- 
tunity of  rendering  a  magnificent  service  to  humanity,  and  to  the 
world ! 

Proclaim  that  for  you  the  days  of  plunder  and  butchery  have  gone 
by;  send  messages  of  peace  and  fraternity  to  your  fellows  who  have 
less  liberty  than  you.  Down  with  class  rule.  Down  with  the  rule 
of  brute  force.  Down  with  war.  Up  with  the  peaceful  rule  of  the 
people. 

[Signed  on  behalf  of  the  British  Section  of  the  International  Socialist 
Bureau] 

J.  KEIR  HARDIE 
ARTHUR  HENDERSON 

B.     THE  VOICE  OF  THE  CROWD1 

That  this  demonstration,  representing  the  organized  workers  and 
citizens  of  London,  views  with  serious  alarm  the  prospects  of  a 
European  war,  into  which  every  European  power  will  be  dragged 
owing  to  secret  alliances  and  understandings  which  in  their  origin  were 
never  sanctioned  by  the  nations,  nor  are  even  now  communicated  to 
them;  we  stand  by  the  efforts  of  the  International  Working  Class 
Movement  to  unite  the  workers  of  the  nations  concerned  in  their 
efforts  to  prevent  their  governments  from  entering  upon  war,  as 
expressed  in  the  resolution  passed  by  the  International  Socialist 

1  Resolutions  adopted  with  enthusiasm  at  an  anti-war  mass-meeting  in  Trafal- 
gar Square,  August  2,  1914. 


486  ECONOMICS  OF  WAR 

Bureau;  we  protest  against  any  step  being  taken  by  the  government 
of  this  country  to  support  Russia,  either  directly  or  in  consequence 
of  any  understanding  with  France,  as  being  not  only  offensive  to  the 
political  traditions  of  the  country  but  disastrous  to  Europe;  and 
declare  that  as  we  have  no  interest,  direct  or  indirect,  in  the  threat- 
ened quarrels  which  may  result  from  the  action  of  Austria  in  Servia, 
the  government  of  Great  Britain  should  rigidly  decline  to  engage  in 
war,  but  should  confine  itself  to  efforts  to  bring  about  peace  as 
speedily  as  possible. 

C.      LABOR   OFFICIALLY   SPEAKS1 

August  7,  1914 

DEAR  SIR:  We  beg  to  inform  you  that  a  special  meeting  of  the 
national  executive  of  the  Labour  Party  was  held  on  August  5  and  6 
to  consider  the  European  crisis,  when  it  was  decided  to  forward  to 
each  of  the  affiliated  organizations  the  following  resolutions: 

That  the  conflict  between  the  nations  of  Europe  in  which  this 
country  is  involved  is  owing  to  Foreign  Ministers  pursuing  diplomatic 
policies  for  the  purpose  of  maintaining  a  balance  of  power;  that  our 
own  national  policy  of  understandings  with  France  and  Russia  only 
was  bound  to  increase  the  power  of  Russia  both  in  Europe  and  Asia, 
and  to  endanger  good  relations  with  Germany. 

That  Sir  Edward  Grey,  as  proved  by  the  facts  which  he  gave  to 
the  House  of  Commons,  committed,  without  the  knowledge  of  our 
people,  the  honour  of  the  country  to  supporting  France  in  the  event 
of  any  war  in  which  she  was  seriously  involved,  and  gave  definite 
assurances  of  support  before  the  House  of  Commons  had  any  chance 
of  considering  the  matter. 

That  the  Labour  movement  reiterates  the  fact  that  it  has 
opposed  the  policy  which  has  produced  the  war,  and  that  its  duty  is 
now  to  secure  peace  at  the  earliest  possible  moment  on  such  conditions 
as  will  provide  the  best  opportunities  for  the  re-establishment  of 
amicable  feelings  between  the  workers  of  Europe. 

That  without  in  any  way  receding  from  the  position  that  the 
Labour  movement  has  taken  in  opposition  to  our  engaging  in  a  Euro- 
pean war,  the  executive  of  the  party  advises  that,  while  watching  for 
the  earliest  opportunity  for  taking  effective  action  in  the  interests  of 
peace  and  the  re-establishment  of  good  feeling  between  the  workers 

1  A  letter  of  the  Executive  Committee  of  the  Labour  Party,  containing  resolu- 
tions passed  by  the  Committee. 


LABOR  AND  THE  WAR  487 

of  the  European  nations,  all  Labour  and  Socialist  organizations 
concentrate  their  energies  meantime  upon  the  task  of  carrying  out  the 
resolutions  passed  at  the  Conference  of  Labour  organizations  held 
at  the  House  of  Commons  on  August  5,  detailing  measures  to  be  taken 
to  mitigate  the  destitution  which  will  inevitably  overtake  our  working, 
people  while  the  state  of  war  lasts." 
[Signed] 

W.  C.  ANDERSON,  Chairman 
ARTHUR  HENDERSON,  Secretary 

D.    THE  WAR  MUST  BE  FOUGHT1 
MY  DEAR  MR.  MAYOR: 

I  am  very  sorry  indeed  that  I  cannot  be  with  you  on  Friday.  My 
opinions  regarding  the  causes  of  the  war  are  pretty  well  known, 
except  in  so  far  as  they  have  been  misrepresented;  but  we  are  in  it. 
It  will  work  itself  out  now.  Might  and  spirit  will  win,  and  incalculable 
political  and  social  consequences  will  follow  upon  victory. 

Victory,  therefore,  must  be  ours.  England  is  not  played  out. 
Her  mission  is  not  accomplished.  She  can,  if  she  would,  take  the 
place  of  esteemed  honour  among  the  democracies  of  the  world,  and 
if  peace  is  to  come  with  the  healing  on  her  wings,  the  democracies  of 
Europe  must  be  her  guardians.  There  should  be  no  doubt  about  that. 

Well,  we  cannot  go  back,  nor  can  we  turn  to  the  right  or  to  the  left. 
We  must  go  straight  through.  History  will,  in  due  time,  apportion 
the  praise  and  the  blame,  but  the  young  men  of  the  country  must,  for 
the  moment,  settle  the  immediate  issue  of  victory.  Let  them  do  it 
in  the  spirit  of  the  brave  men  who  have  crowned  our  country  with 
honour  in  the  times  that  are  gone.  Whoever  may  be  in  the  wrong, 
men  so  inspired  will  be  in  the  right.  The  quarrel  was  not  of  the 
people,  but  the  end  of  it  will  be  the  lives  and  liberties  of  the  people. 

Should  an  opportunity  arise  to  enable  me  to  appeal  to  the  pure 
love  of  country — which  I  know  is  a  precious  sentiment  in  all  our  hearts, 
keeping  it  clear  of  thoughts  which  I  believe  to  be  alien  to  real  patriot- 
ism— I  shall  gladly  take  that  opportunity.  If  need  be  I  shall  make  it 
for  myself.  I  want  the  serious  men  of  the  Trade  Union,  the  Brother- 
hood, and  similar  movements  to  face  their  duty.  To  such  men  it  is 
enough  to  say  "England  has  need  of  you";  to  say  it  in  the  right  way. 

1  A  letter  by  Mr.  MacDonald,  who,  because  of  "disagreement  with  some  of 
his  colleagues  on  certain  aspects  of  the  European  crisis,"  resigned  the  leadership 
of  the  Labour  Party  during  the  crisis.  The  letter  is  dated  September  n,  1914. 


488  ECONOMICS  OF  WAR 

They  will  gather  to  her  aid.  They  will  protect  her,  and  when  the  war 
is  over  they  will  see  to  it  that  the  policies  and  conditions  that  make  it 
will  go  like  the  mists  of  a  plague  and  the  shadows  of  a  pestilence. 

Yours  very  sincerely, 

J.  RAMSAY  MACDONALD 

E.    MANIFESTO  TO  THE  TRADE  UNIONISTS  OF  THE  COUNTRY1 
GENTLEMEN: 

The  Trade  Union  Congress  Parliamentary  Committee,  at  their 
meeting  held  yesterday,  had  under  consideration  the  serious  position 
created  by  the  European  war  and  the  duty  which  Trade  Unionists, 
in  common  with  the  community  in  general,  owe  to  themselves  and 
the  country  of  which  they  are  citizens. 

They  were  especially  gratified  at  the  manner  in  which  the  Labour 
Party  in  the  House  of  Commons  had  responded  to  the  appeal  made  to 
all  political  parties  to  give  their  co-operation  in  securing  the  enlistment 
of  men  to  defend  the  interests  of  their  country,  and  heartily  indorse 
the  appointment  upon  the  Parliamentary  Recruiting  Committee  of 
four  members  of  the  party,  and  the  placing  of  the  services  of  the 
national  agent  at  the  disposal  of  that  committee  to  assist  in  carrying 
through  its  secretarial  work. 

The  Parliamentary  Committee  are  convinced  that  one  important 
factor  in  the  present  European  struggle  has  to  be  borne  in  mind,  so 
far  as  our  own  country  is  concerned — namely,  that  in  the  event  of  the 
voluntary  system  of  military  service  failing  the  country  in  this  its 
time  of  need,  the  demand  for  a  national  system  of  compulsory  military 
service  will  not  only  be  made  with  redoubled  vigour,  but  may  prove 
to  be  so  persistent  and  strong  as  to  become  irresistible.  The  prospect 
of  having  to  face  conscription,  with  its  permanent  and  heavy  burden 
upon  the  financial  resources  of  the  country,  and  its  equally  burden- 
some effect  upon  nearly  the  whole  of  its  industries,  should  in  itself 
stimulate  the  manhood  of  the  nation  to  come  forward  in  its  defence, 
and  thereby  demonstrate  to  the  world  that  a  free  people  can  rise  to 
the  supreme  heights  of  a  great  sacrifice  without  the  whip  of  conscrip- 
tion. 

Another  factor  to  be  remembered  in  this  crisis  of  our  nation's 
history,  and  most  important  of  all  so  far  as  Trade  Unionists  and 
Labour  in  general  are  concerned,  is  the  fact  that  upon  the  result  of 

1  Issued  at  the  beginning  of  September,  1914. 


LABOR  AND  THE  WAR  489 

the  struggle  in  which  this  country  is  now  engaged  rest  the  preservation 
and  maintenance  of  free  and  unfettered  democratic  government, 
which  in  its  international  relationships  has  in  the  past  been  recognized, 
and  must  unquestionably  in  the  future  prove  to  be  the  best  guarantee 
for  the  preservation  of  the  peace  of  the  world. 

The  mere  contemplation  of  the  overbearing  and  brutal  methods 
to  which  people  have  to  submit  under  a  government  controlled  by  a 
military  autocracy — living,  as  it  were,  continuously  under  the  threat 
and  shadow  of  war — should  be  sufficient  to  arouse  the  enthusiasm 
of  the  nation  in  resisting  any  attempt  to  impose  similar  conditions 
upon  countries  at  present  free  from  military  despotism. 

Long  life  to  the  free  institutions  of  all  democratically  governed 
countries ! 

Yours  faithfully, 

THE  PARLIAMENTARY  COMMITTEE 

F.    THE  ACCEPTANCE  OF  WAR1 

The  British  Labour  movement  has  always  stood  for  peace. 
During  the  last  decade  it  has  made  special  efforts  to  promote  friendly 
relations  between  the  peoples  of  Great  Britain  and  Germany.  Depu- 
tations of  Labour  representatives  have  taken  messages  of  good- 
will across  the  North  Sea  despite  the  obstacles  to  international 
working-class  solidarity  which  existed.  In  turn,  German  Labour 
leaders  on  similar  missions  have  been  welcomed  in  this  country  by 
organised  workers.  A  strong  hope  was  beginning  to  dawn  that  out 
of  this  intercourse  would  grow  a  permanent  peaceful  understanding 
between  the  two  nations. 

But  this  hope  has  been  destroyed,  at  least  for  a  time,  by  the 
deliberate  act  of  the  ruler  of  the  military  Empire  of  Germany.  The 
refusal  of  Germany  to  the  proposal  made  by  England  that  a  con- 
ference of  the  European  powers  should  deal  with  the  dispute  between 
Austria  and  Servia,  the  peremptory  domineering  ultimatum  to  Russia, 
and  the  rapid  preparations  to  invade  France,  all  indicate  that  the 
German  military  caste  was  determined  on  war  if  the  rest  of  Europe 

1  This  manifesto  was  issued  October  15,  1914,  "to  clear  away  once  and  for  all 
misconceptions  which  have  been  circulated  as  to  the  attitude  of  the  British  Labour 
movement."  "It  was  signed  by  most  of  the  Labour  Members  of  Parliament,  by 
the  Parliamentary  Committee  of  the  Trades  Union  Congress,  by  the  Management 
Committee  of  the  General  Federation  of  Trade  Unions,  and  by  other  Labour 
Leaders." — G.  D.  H.  Cole,  op.  cit.,  p.  55. 


4QO  ECONOMICS  OF  WAR 

could  not  be  cowed  into  submission  by  other  means.  The  wanton 
violation  of  the  neutrality  of  Belgium  was  proof  that  nothing,  not 
even  national  honour  and  good  faith,  was  to  stand  between  Germany 
and  the  realisation  of  its  ambitions  to  become  the  dominant  military 
power  of  Europe,  with  the  kaiser  the  dictator  over  all. 

The  Labour  Party  in  the  House  of  Commons,  face  to  face  with  this 
situation,  recognised  that  Great  Britain,  having  exhausted  the 
resources  of  peaceful  diplomacy,  was  bound  in  honour,  as  well  as  by 
treaty,  to  resist  by  arms  the  aggression  of  Germany.  The  party 
realised  that  if  England  had  not  kept  her  pledges  to  Belgium,  and  had 
stood  aside,  the  victory  of  the  German  army  would  have  been  prob- 
able, and  the  victory  of  Germany  would  mean  the  death  of  democracy 
in  Europe. 

Working-class  aspirations  for  greater  political  and  economic 
power  would  be  checked,  thwarted,  and  crushed,  as  they  have  been 
in  the  German  Empire.  Democratic  ideas  cannot  thrive  in  a  state 
where  militarism  is  dominant;  and  the  military  state  with  a  sub- 
servient and  powerless  working  class  is  the  avowed  political  ideal  of 
the  German  ruling  caste. 

The  Labour  Party,  therefore,  as  representing  the  most  democratic 
elements  in  the  British  nation,  has  given  its  support  in  Parliament  to 
the  measure  necessary  to  enable  this  country  to  carry  on  the  struggle 
effectively.  It  has  joined  in  the  task  of  raising  an  army  large  enough 
to  meet  the  national  need  by  taking  active  part  in  the  recruiting 
campaign  organised  by  the  various  Parliamentary  parties.  Members 
of  the  party  have  addressed  numerous  meetings  throughout  the 
country  for  this  purpose,  and  the  central  machinery  of  the  party  has 
been  placed  at  the  service  of  the  recruiting  campaign.  This  action 
has  been  heartily  endorsed  by  the  Parliamentary  Committee  of  the 
Trades  Union  Congress,  which  represents  the  overwhelming  majority 
of  the  Trade  Unionists  of  the  country.  The  Committee,  in  a  mani- 
festo on  the  war,  states: 

"The  mere  contemplation  of  the  overbearing  and  brutal  methods 
to  which  people  have  to  submit  under  a  government  controlled  by  a 
military  autocracy — living,  as  it  were,  continuously  under  the  threat 
and  shadow  of  war — should  be  sufficient  to  arouse  the  enthusiasm  of 
the  nation  in  resisting  any  attempt  to  impose  similar  conditions  upon 
countries  at  present  free  from  military  despotism." 

The  policy  of  the  British  Labour  movement  has  been  dictated  by 
a  fervent  desire  to  save  Great  Britain  and  Europe  from  the  evils  that 


LABOR  AND  THE  WAR  491 

would  follow  the  triumph  of  military  despotism.  Until  the  power 
which  has  pillaged  and  outraged  Belgium  and  the  Belgians,  and 
plunged  nearly  the  whole  of  Europe  into  the  awful  misery,  suffering, 
and  horror  of  war,  is  beaten,  there  can  be  no  peace.  While  the 
conflict  lasts  England  must  be  sustained  both  without  and  within; 
combatants  and  non-combatants  must  be  supported  to  the  utmost. 
The  Labour  movement  has  done  and  is  doing  its  part  in  this  para- 
mount national  duty,  confident  that  the  brutal  doctrine  and  methods 
of  German  militarism  will  fail.  When  the  time  comes  to  discuss  the 
terms  of  peace  the  Labour  movement  will. stand,  as  it  always  has  stood, 
for  an  international  agreement  among  all  civilised  nations  that  dis- 
putes and  misunderstandings  in  the  future  shall  be  settled,  not  by 
machine  guns,  but  by  arbitration. 

3.     THE  ATTITUDE  OF  AMERICAN  LABOR 

A.      THE   WAR   A   LABORER'S   WAR1 

There  have  been  some  of  our  people  here  and  there  who  have 
asserted  that  this  is  a  capitalists'  war,  that  it  is  a  Wall  Street  war,  that 
it  is  a  munitions  manufacturers'  war.  I  wonder  if  those  people  have 
stopped  to  examine  the  policy  that  has  been  pursued  by  the  govern- 
ment since  war  was  declared,  and  before  it  was  declared,  before  they 
made  utterances  of  that  kind.  If  this  is  a  capitalists'  war,  then  it 
follows  that  the  administration  at  Washington — Congress  and  the 
President — have  been  dominated  by  capitalism,  and,  if  they  were 
dominated  by  capitalism  in  declaring  war,  it  would  follow  that  they 
would  be  dominated  by  capitalism  in  pursuing  the  war.  And  yet, 
what  are'  the  facts  ? 

Instead  of  permitting  the  capital  of  the  country  to  secure  profits 
at  will,  one  of  the  first  powers  granted  to  the  war  administration  was  to 
fix  the  prices  at  which  capitalists  should  sell  the  products  of  labor — 
the  selling  price  of  coal  at  the  mines  was  fixed,  the  price  of  wheat  was 
fixed,  the  prices  of  certain  metal  products  were  fixed,  the  price  of 
copper  was  fixed;  but  in  no  instance  has  there  been  any  attempt  on 
the  part  of  the  administration  to  fix  the  maximum  price  that  should 
be  paid  for  labor.  And  when  it  came  to  fixing  the  price  of  copper  at 
23!  cents  per  pound  the  only  stipulation  that  was  included  by  the 
War  Industries  Board  handling  the  proposition  was  that  the  fixing 

1  By  William  B.  Wilson.  From  Labor's  Relation  to  the  World  War,  pp.  7-8. 
Published  by  the  United  States  Department  of  Labor. 

ED.  NOTE. — Mr.  Wilson  is  the  Secretary  of  Labor  in  the  present  administration. 


49 2  ECONOMICS  OF  WAR 

of  Ihe  price  at  23^  cents  per  pound  must  not  result  in  the  lowering  of 
the  rate  of  wages  that  was  established  under  the  former  prices.  And 
yet  there  are  people  who,  in  the  face  of  these  facts  and  hundreds  more 
that  I  might  cite  if  I  would  take  the  time,  want  to  intimate  that  this 
is  a  capitalists'  war,  a  Wall  Street  war,  and  a  war  of  the  munitions 
manufacturers.  My  friends,  this  is  a  war  of  the  people  of  the  United 
States  for  the  preservation  of  their  institutions.  And  for  the  purpose 
of  preserving  these  institutions  we  are  gathering  together  armies. 
We  are  sending  the  flower  of  our  youth  into  the  training  camps  and 
over  the  seas  into  France  to  protect  those  who  remain  at  home. 

During  the  past  decade  the  sentiment  of  American  labor  has 
crystallized  against  resort  to  arms  as  a  means  of  settlement  of  disputes 
between  nations.  War  had  come  to  be  considered  wasteful  economi- 
cally, socially,  and  morally.  Labor  felt  that  no  national  advantage 
gained  through  force  of  arms  could  offset  the  human  life  sacrificed, 
the  burden  of  taxation  levied  upon  successive  generations  to  pay  the 
cost  of  war,  the  standards  of  life  set  back  or  destroyed,  which  had  to  be 
rebuilt  slowly  and  with  infinite  sacrifice.  In  short,  war  had  come 
to  be  looked  upon  as  morally  wrong,  entirely  unnecessary,  a  calamity 
that  could  be  avoided  and  must  be  avoided  if  the  race  was  to  progress. 
This  feeling  was  shared  to  a  greater  or  lesser  extent  by  the  workers 
of  all  civilized  nations,  and  there  was  a  universal  feeling  in  world 
labor  ranks  prior  to  the  outbreak  of  the  European  war  that  this  senti- 
ment, shared  by  many  thoughtful  people  outside  the  ranks  of  the 
wage  workers  in  all  civilized  nations,  was  strong  enough  to  prevent 
any  armed  conflict  which  would  involve  any  number  of  peoples.  This 
sentiment  was  undoubtedly  responsible  for  the  lack  of  military  pre- 
paredness, in  the  sense  that  Germany  prepared,  among  the  other 
major  powers  now  engaged  in  the  world-conflict. 

When  the  war  clouds  broke  in  Europe,  American  labor  was  stunned. 
All  its  preconceived  notions  as  to  the  inability  of  any  great  nation  to 
wage  war  upon  another  nation  because  the  working  people  would 
refuse  either  to  fight  or  produce  munitions  and  supplies  of  war  were 
shattered  when  nation  after  nation  quickly  mobilized  its  armies  and 
the  organized-labor  movements  of  each  country,  without  exception, 
quickly  pledged  their  men  and  their  resources  to  the  support  of  their 
respective  governments.  But  the  fact  that  America  itself  might  be 
drawn  into  the  world-conflict  was  still  foreign  to  the  mind  of  the 
American  workman.  While  American  labor  grieved  over  the  fate 
which  had  befallen  its  kind  in  Europe  no  sense  of  danger  to  this 


LABOR  AND  THE  WAR  493 

country  was  apparent.  From  the  beginning  of  this  Republic  it  had 
been  our  national  policy  to  hold  aloof  from  the  quarrels  of  the  Old 
World.  The  splendid  isolation  of  thousands  of  miles  of  ocean  pro- 
tected us.  We  had  no  quarrel  with  Europe  and  we  asked  but  to  be 
let  alone.  We  stood  upon  our  rights  to  protect  the  people  of  conti- 
nental America  from  invasion  or  aggression  as  enunicated  by  the 
Monroe  doctrine,  and  further  than  that  we  could  not  see  that  the 
European  conflict  embroiled  us  as  a  nation.  Let  Europe  settle  her 
own  family  quarrel.  We  were  to  remain  the  one  great  neutral  nation 
of  the  earth.  When  the  time  came  America,  untrammeled  by  parti- 
cipation in  the  conflict,  with  no  desire  for  American  aggrandisement 
or  territorial  expansion,  would  be  the  natural  messenger  of  peace  to 
war-worried  Europe. 

For  a  considerable  time  the  feeling  has  been  prevalent  in  this 
country  that  all  wars  were  fought  in  the  interests  of  the  capitalist 
class;  that  labor  had  everything  to  lose  and  nothing  to  gain  by 
engaging  in  war.  This  sentiment  has  obtained  not  alone  among  the 
laboring  classes  but  among  a  large  element  of  independent  thinkers 
outside  of  labor's  ranks.  When  America  entered  the  world-war  the 
sentiment  was  freely  expressed  that  Wall  Street,  being  heavily 
involved  in  loans  to  the  allied  European  nations,  and  feeling  the  war 
going  in  favor  of  the  central  powers,  had  plunged  this  government  into 
the  conflict  to  assure  victory  to  the  allied  forces  and  thus  secure  the 
collection  of  their  loans  to  the  Allies.  The  sentiment  was  echoed 
and  re-echoed  upon  the  public  rostrum  and  upon  the  street,  in  all 
sincerity  upon  the  part  of  many,  in  the  shallowest  hypocrisy  upon  the 
part  of  the  agents  of  Germany,  who  saw  in  the  propaganda  an  effective 
argument  in  the  program  of  dissension  among  American  workers.  A 
little  calm  reflection  ought  to  convince  every  thinking  person  that 
American  capital  had  most  to  gain  by  keeping  the  United  States  out 
of  the  war. 

Before  we  entered  the  war  there  was  no  governmental  restriction 
upon  war  profits  in  this  country.  Europe  was  at  its  wits'  end  for 
supplies  and  turned  to  the  United  States,  the  greatest  manufacturing 
country  on  earth.  Price  was  no  object  if  the  American  manufacturers 
could  deliver  the  goods  in  record  time.  There  was  profiteering  in 
those  days  and  on  a  tremendous  scale.  When  America  entered  the 
war  things  changed.  It  would  be  an  insult  to  your  intelligence  to  say 
that  profiteering  has  ceased,  for  it  has  not,  but  it  has  tremendously 
decreased.  Governmental  price  fixing  is  still  in  its  initial  stages.  The 


494  ECONOMICS  OF  WAR 

process  is  slow  because  we  little  realize  the  tremendous  ramifications 
of  American  industry,  all  the  complex  factors  that  enter  into  cost 
of  production  in  our  great  industrial  system.  The  United  States 
Government  wishes  no  manufacturing  or  supplying  concern  to  run 
at  a  loss,  nor  does  it  want  the  worker  robbed  of  his  rightful  share.  It 
takes  time  and  careful,  scientific  study  to  determine  all  the  elements  in 
cost  of  production  and  determine  a  selling  cost  that  will  be  fair  to  all, 
but  that  is  the  policy  of  the  government  in  its  program  of  price  fixing 
of  commodities  needed  in  war  prosecution  and  the  sustenance  of  the 
American  people  on  a  decent  living  basis. 

It  is  worthy  of  note  that  in  not  a  single  instance  in  this  country  has 
the  government  attempted  to  say  what  should  be  the  maximum  price 
of  wages.  In  every  instance  where  a  wage  dispute  has  existed  in  a 
war  industry  the  government,  if  called  into  the  dispute,  has  used 
patience  in  inquiring  into  the  nature  of  the  dispute  and  has  endeavored 
to  adjust  the  controversy  on  a  basis  acceptable  to  the  workers 
involved. 

B.      A  DECLARATION   OF  PRINCIPLES1 

The  American  Alliance  for  Labor  and  Democracy  in  its  first 
national  conference  declares  its  unswerving  adherence  to  the  cause 
of  democracy,  now  assailed  by  the  forces  of  autocracy  and  militarism. 
As  labor  unionists,  social  reformers,  and  Socialists  we  pledge  our  loyal 
support  and  service  to  the  United  States  Government  and  its  Allies 
in  the  present  world  conflict. 

We  declare  that  the  one  overshadowing  issue  is  the  preservation 
of  democracy.  Either  democracy  will  endure  and  men  will  be  free, 
or  autocracy  will  triumph  and  the  race  will  be  enslaved.  On  this 
prime  issue  we  take  our  stand.  We  declare  that  the  great  war  must 
be  fought  to  a  decisive  result;  that  until  autocracy  is  defeated  there 
can  be  no  hope  of  an  honorable  peace,  and  that  to  compromise  the 
issue  is  only  to  sow  the  seed  for  bloodier  and  more  devastating  wars 
in  the  future. 

We  declare  our  abhorrence  of  war  and  our  devotion  to  the  cause 
of  peace.  But  we  recognize  that  there  are  evils  greater  and  more 
intolerable  than  those  of  war.  We  declare  that  war  waged  for  evil 
ends  must  be  met  by  war  waged  for  altruistic  ends.  A  peace  bought 
by  the  surrender  .of  every  principle  vital  to  democracy  is  no  peace,  but 

1  Adopted  unanimously  by  the  American  Alliance  for  Labor  and  Democracy 
at  its  first  national  conference  at  Minneapolis,  September  5-7,  1917. 


LABOR  AND  THE  WAR  495 

shameful  servility.  Our  nation  has  not  sought  this  war.  As  a 
people,  we  desired  peace  for  its  own  sake,  and  we  held  fast  to  our 
traditional  principle  of  keeping  aloof  from  the  political  affairs  of 
Europe.  Our  President,  with  a  forbearance  and  a  patience  which 
some  of  us  thought  extreme,  exhausted  every  honorable  means  in 
behalf  of  peace;  and  the  declaration  of  war  came  only  after  many 
months  of  futile  efforts  to  avoid  a  conflict.  This  war,  so  relentlessly 
forced  upon  us,  must  now  be  made  the  means  of  insuring  a  world-wide 
and  permanent  peace. 

We  declare  that  in  this  crisis  the  one  fundamental  need  is  unity 
of  action.  The  successful  prosecution  of  the  war  requires  that  all 
the  energies  of  our  people  be  concentrated  to  a  common  purpose. 
After  more  than  two  years  of  exhaustive  deliberation,  in  which  every 
phase  of  our  relation  to  the  great  world-problem  has  been  thoroughly 
debated,  the  constitutional  representatives  of  the  people  declared  the 
nation's  will.  Loyalty  to  the  people  demands  that  all  acquiesce  in 
that  decision  and  render  the  government  every  service  in  their 
power. 

We  strongly  denounce  the  words  and  actions  of  those  enemies  of 
the  Republic  who,  falsely  assuming  to  speak  in  the  name  of  labor  and 
democracy,  are  now  ceaselessly  striving  to  obstruct  the  operations 
of  the  government's  purposes.  In  traducing  the  character  of  the 
President  and  of  his  advisers,  in  stealthily  attempting  to  incite 
sedition,  and  in  openly  or  impliedly  counseling  resistance  to  the 
enforcement  of  laws  enacted  for  the  National  Defense,  they  abuse  the 
rights  of  free  speech,  free  assemblage,  and  a  free  press.  In  the  name 
of  liberty  they  encourage  anarchy,  in  the  name  of  democracy  they 
strive  to  defeat  the  will  of  the  majority,  and  in  the  name  of  humanity 
they  render  every  possible  comfort  to  the  brutal  Prussian  autocracy. 
If  the  sinister  counsels  of  these  persons  were  followed,  labor  would  be 
reduced  to  subjection  and  democracy  would  be  obliterated  from  the 
earth.  We  declare  that  the  betrayal  of  one's  fellow-workers  during  a 
strike  finds  its  exact  counterpart  in  the  betrayal  of  one's  fellow- 
citizens  in  time  of  war,  and  that  both  are  offenses  which  deserve  the 
detestation  of  mankind. 

This  war,  which  on  our  part  is  waged  for  the  preservation  of 
democracy,  has  already  set  in  motion  vast  forces  for  the  furtherance 
and  extension  of  democracy.  Revolutionary  changes  have  been  made 
— changes  which  reveal  the  power  and  determination  of  a  democratic 
people  to  control  its  own  economic  life  for  the  common  good.  We 


496  ECONOMICS  OF  WAR 

declare  that  peace  shall  not  be  another  name  for  reaction,  but  that 
the  gains  thus  far  made  for  labor  should  be  maintained  in  perpetuity. 

We  declare  that  industrial  enterprises  should  be  the  servants  and 
not  the  masters  of  the  people;  and  that  in  cases  where  differences 
between  owners  and  workers  threaten  a  discontinuance  of  production 
necessary  for  the  war,  the  government  should  assume  complete 
control  of  such  industries  and  operate  them  for  the  exclusive  benefit 
of  the  people. 

We  declare  that  the  government  should  take  prompt  action  with 
regard  to  the  speculative  interests  which,  expecially  during  the  war, 
have  done  so  much  to  enhance  prices  of  the  necessaries  of  life.  To 
increase  the  food  supply  and  to  lower  prices  the  government  should 
commandeer  all  land  necessary  for  public  purposes  and  should  tax 
idle  land  in  private  possession  on  its  full  rental  value. 

We  declare  that  the  right  of  the  wage  earners  to  collective  action 
is  the  fundamental  condition  which  gives  opportunity  for  economic 
freedom  and  makes  possible  the  betterment  of  the  workers'  condition. 
The  recognition  already  given  to  this  principle  should  be  extended  and 
made  the  basis  of  all  relationships,  direct  or  indirect,  between  the 
government  and  wage  earners  engaged  in  activities  connected  with 
the  war. 

We  declare  that  the  wage  earners  must  have  a  voice  in  determining 
the  conditions  under  which  they  are  to  give  service,  and  that  the 
voluntary  institutions  that  have  organized  the  industrial,  commercial, 
and  transportation  workers  in  time  of  peace  shall  be  unhampered  in 
the  exercise  of  their  recognized  function  during  the  war — that  labor 
shall  be  adequately  represented  in  all  the  councils  authorized  to 
conduct  the  war  and  in  the  commission  selected  to  negotiate  terms 
of  peace. 

Believing  that  the  material  interests  of  the  nation's  soldiers  and 
sailors  and  of  their  dependents  should  be  withdrawn  from  the  realm 
of  charity  and  chance,  and  that  health  and  life  should  be  fully  insured, 
we  indorse  the  soldiers  and  sailors'  insurance  bill  now  before  Congress. 

We  declare  for  universal  equal  suffrage. 

Fully  realizing  that  the  perpetuity  of  democratic  institutions  is 
involved  in  freedom  of  speech,  of  the  press,  and  of  assemblage,  we 
declare  that  these  essential  rights  must  be  guarded  with  zealous  care 
lest  all  other  rights  be  lost.  We  declare,  however,  that  where  expres- 
sions are  used  which  are  obstructive  to  the  government  in  its  conduct 
of  the  war,  or  are  clearly  capable  of  giving  aid  or  comfort  to  the 


LABOR  AND  THE  WAR  497 

nation's  foes,  the  offenders  should  be  reprimanded  by  the  constituted 
authorities  in  accordance  with  established  law. 

Inspired  by  the  ideals  of  liberty  and  justice  herein  declared  as  a 
fundamental  basis  for  national  policies  the  American  Alliance  for 
Labor  and  Democracy  makes  its  appeal  to  the  working  men  and 
women  of  the  United  States,  and  calls  upon  them  to  unite  in  unani- 
mous support  of  the  President  and  the  nation  for  the  prosecution  of 
the  war  and  the  preservation  of  democracy. 

LVIII.     Problems  in  the  Mobilization  of  American  Labor 
i.    THE  CHALLENGE  TO  AMERICAN  LABOR1 

A.      GREAT  BRITAIN2 

The  British  trade  union  movement,  having  first  decided  to  support 
the  war,  immediately  applied  itself  to  the  ways  and  means  by  which 
it  could  best  do  it,  and  the  first  thing  we  did  was  to  declare  there 
should  exist  during  the  period  of  the  war  an  industrial  truce.  That 
is  to  say,  that  with  the  war  raging  as  it  was  it  would  be  madness  and 
folly  to  have  side  by  side  with  that  war  raging  an  industrial  war  in  our 
own  country,  and  we  entered  into  an  agreement  with  the  employers 
whereby  they,  on  the  one  hand,  agreed  that  they  would  not  interfere 
with  or  reduce  the  conditions  prevalent  at  the  time,  in  return  for 
which  we,  on  the  other  hand,  agreed  that  we  should  not  attempt  to 
set  up  any  new  standard  conditions,  and  that  truce  was  practically 
agreed  to  by  the  whole  of  the  organized  workers  of  Great  Britain. 

B.      FRANCE3 

To  do  a  good  day's  work  is  no  longer  enough;  one  must  do  all 
there  is  to  be  done.  The  worker's  effort  is  on  the  same  plane  of 
necessity  as  military  effort.  During  the  Battle  of  Verdun,  at  a 
certain  forge  for  "155"  shells,  the  man's  day  passed  at  one  bound  to 
eighteen  hours,  and  to  such  speed  that  the  proportion  of  sick  and 
exhausted  reached  1 1  per  cent.  The  soul  of  his  labor  lifts  the  work- 
man above  fatigue,  and  social  equity  is  dominated  by  the  duty  to 
keep  for  France  her  just  place  in  the  world.  France  has  been  con- 
strained to  an  experience  which  has  revealed  her  to  herself.  She  will 

1  Reprinted  in  American  Industry  in  War  Time  (March  10,  1918),  pp.  8-9. 

2  A  statement  by  Hon.  James  H.  Thomas,  General  Secretary,  National  Union 
of  Railway  Men  of  Great  Britain  and  Ireland. 

3  A  statement  by  The  New  Republic,  July  21,  1917. 


498  ECONOMICS  OF  WAR 

know  how  to  make  her  force  endure  by  maintaining  in  industry  the 
power  invented  for  battle. 

C.      ITALY1 

The  response  of  Italian  labor,  both  field  and  factory,  to  the 
emergency  of  war  and  the  necessity  of  industrial  mobilization  has 
been  splendid.  Our  munition  works  and  transportation  systems,  for 
example,  are  all  under  full  military  discipline  and  every  man  employed 
in  such  an  industry  is  rated  as  a  soldier.  But  he  gets  the  pay  of  a 
mechanic  that  prevails  in  that  industry.  It  seems  unjust,  I  know, 
that  a  soldier  whose  work  it  is  to  fight  at  the  front  receives  about 
five  cents  a  day,  while  the  soldier  whose  training  fits  him  for  shop  work 
may  get  five  dollars,  but  there  seems  no  other  way.  We  have  had  no 
strikes,  no  labor  troubles  of  any  sort,  since  the  war  began,  and  we  do 
not  fear  any. 

2.     CONSERVE  OUR  INDUSTRIAL  ARMY2 

WHEREAS,  The  entrance  of  the  United  States  into  the  World  War 
appears  imminent;  and 

WHEREAS,  Other  countries  upon  engaging  in  the  conflict  permitted  a 
serious  breakdown  of  protective  labor  regulations  with  the  result,  as  shown 
by  recent  official  investigations,  of  early  and  unmistakable  loss  of  health, 
output,  and  national  effectiveness;  and 

WHEREAS,  Our  own  experience  has  already  demonstrated  that  accidents 
increase  with  speeding  up  and  the  employment  of  new  workers  unaccustomed 
to  their  tasks,  that  overfatigue  defeats  the  object  aimed  at  in  lengthening 
working  hours,  and  that  new  occupational  poisoning  has  accompanied  the 
recent  development  of  munition  manufacture;  and 

WHEREAS,  The  full  strength  of  our  nation  is  needed  as  never  before 
and  we  cannot  afford  to  suffer  loss  of  labor  power  through  accidents,  disease, 
industrial  poisoning,  and  overfatigue;  now,  therefore,  be  it 

Resolved,  That  the  American  Association  for  Labor  Legislation,  at  this 
critical  time,  in  order  to  promote  the  success  of  our  country  in  war  as  well 
as  in  peace,  would  sound  a  warning  against  the  shortsightedness  and  laxness 
at  first  exemplified  abroad  in  these  matters,  and  would  urge  all  public- 
spirited  citizens  to  co-operate  in  maintaining,  for  the  protection  of  those 
who  serve  in  this  time  of  stress  the  industries  of  the  nation  (who  as  experience 

1  A  statement  by  Dr.  Francesco  Saverio  Nitti,  member  of  the  Italian  Parlia- 
ment and.  member  of  the  Italian  War  Mission  to  the  United  States. 

3  Congress'  announcement  of  its  attitude  toward  standards  of  legal  protection 
for  workers  in  time  of  war,  issued  March  23,  1917,  by  the  Executive  Committee 
of  the  Association  of  Labor  Legislation.  From  Labor  Laws  in  War  Time,  no.  i,  p.  i. 


LABOR  AND  THE  WAR  499 

abroad  has  shown  are  quite  as  important  to  military  success  as  the  fighting 
forces),  the  following  essential  minimum  requirements: 


I.      SAFETY 

i .  Maintenance  of  all  existing  standards  of  safeguarding  machinery  and 
industrial  processes  for  the  prevention  of  accidents. 

II.      SANITATION 

1.  Maintenance  of  all  existing  measures  for  the  prevention  of  occu- 
pational diseases. 

2.  Immediate  agreement  upon  practicable  methods  for  the  prevention 
of   special   occupational   poisonings   incident    to   making   and   handling 
explosives. 

III.  HOURS 

1.  Three-shift  system  in  continuous  industries. 

2.  In  non-continuous  industries,   maintenance  of  existing  standard 
\vorking  day  as  basic. 

3.  One  day's  rest  in  seven  for  all  workers. 

IV.  WAGES 

1.  Equal  pay  for  equal  work,  without  discrimination  as  to  sex. 

2.  Maintenance  of  existing  wage  rates  for  basic  working  day. 

3.  Time  and  one-half  for  all  hours  beyond  basic  working  day. 

4.  Wage  rates  to  be  periodically  revised  to  correspond  with  variations 
in  the  cost  of  living. 

V.      CHILD    LABOR 

1 .  Maintenance  of  all  existing  special  regulations  regarding  child  labor, 
including  minimum  wages,  maximum  hours,  prohibition  of  night  work, 
prohibited  employments,  and  employment  certificates. 

2.  Determination  of  specially  hazardous  employments  to  be  forbidden 
to  children  under  sixteen. 

vi.    WOMAN'S  WORK 

i.  Maintenance  of  existing  special  regulations  regarding  woman's 
work,  including  maximum  hours,  prohibition  of  night  work,  prohibited 
hazardous  employments,  and  prohibited  employment  immediately  before 
and  after  childbirth. 

VII.      SOCIAL  INSURANCE 

1.  Maintenance  of  existing  standards  of  workmen's  compensation  for 
industrial  accidents  and  diseases. 

2.  Extension  of  workmen's  compensation  laws  to  embrace  occupational 
diseases,  especially  those  particularly  incident  to  the  manufacture  and 
handling  of  explosives. 


500  ECONOMICS  OF  WAR 

3.  Immediate  investigation  of  the  sickness  problem  among  the  workers 
to  ascertain  the  advisability  of  establishing  universal  workmen's  health 
insurance. 

VIII.      LABOR   MARKET 

i.  Extension  of  existing  systems  of  public  employment  bureaus  to  aid 
in  the  intelligent  distribution  of  labor  throughout  the  country. 

IX.      ADMINISTRATION   OF    LABOR   LAWS 

1.  Increased  appropriations  for  enlarged  staffs  of  inspectors  to  enforce 
labor  legislation. 

2.  Representation  of  employees,  employers,  and  the  public  on  joint 
councils  for  co-operating  with  the  labbr  departments  in  drafting  and 
enforcing  necessary  regulations  to  put  the  foregoing  principles  into  full  effect. 

3.    THE  ORGANIZATION  OF  MAN  POWER1 

The  purpose  of  this  article  is  to  attempt  to  bring  simplicity  and 
understanding  to  the  industrial  situation  in  the  United  States  at  the 
present  time.  It  is  an  attempt  to  set  down  what  has  happened,  is 
happening,  and  is  going  to  happen  to  the  fundamentals  of  the  business 
and  industrial  structure  of  the  country.  It  begins  and  ends  with  man 
power,  for  that  is  what  it  all  comes  back  to.  If  the  discussion  be  kept 
in  terms  of  man  power,  it  will  be  within  the  comprehension  of  any 
understanding,  for  the  whole  problem  becomes  merely  one  of  addition 
and  subtraction — under  our  present  conditions,  chiefly  subtraction. 

"Man  power"  is  frequently  used  in  military  discussion  as  meaning 
the  total  number  of  soldiers  a  nation  can  bring  together.  More 
broadly,  and  more  properly,  it  is  the  entire  strength  of  a  nation, 
military  and  industrial.  In  this  more  correct  sense  the  man  power 
of  the  United  States  is  35,000,000 — the  35,000,000  men,  women,  and 
children  who  do  the  country's  work,  who  serve  it  in  the  army,  who 
dig  its  coal,  who  raise  its  crops,  who  run  its  trains,  who  build  its  roads, 
who  make  its  powder,  who  turn  out  its  munitions. 

This  35,000,000  man  power  is  our  all.  It  is  the  whole  measure, 
and  the  true  measure,  of  our  wealth.  It  is  the  measure  of  our  effect- 
iveness in  war  and  peace.  It  is  the  total — to  put  it  in  terms  of  our 
national  card  game — of  our  pile  of  chips  in  the  fight  with  Germany. 
We  cannot  increase  it.  To  a  certain  extent  we  can  mobilize  it  more 
effectively  and  manage  it  more  economically.  But  we  shall  always*- 

1  By  Mark  Sullivan.  Adapted  from  "Man  Power,"  Collier's  Weekly  (June  22. 
1918),  pp.  1-2;  35-38.  Copyright  by  P.  F.  Collier  &  Son,  Inc.,  1918. 

ED.  NOTE. — Mr.  Sullivan  was  until  recently  editor  of  Collier's  Weekly. 


LABOR  AND  THE  WAR  501 

come  back  to  this  35,000,000,  and  no  more,  as  the  measure  of  this 
nation's  capacity  to  work,  to  fight,  to  accomplish,  to  do. 

Now  let  us  see  just  what  has  happened  to  this  35,000,000  since  the 
war  began.  The  first  thing  to  bear  in  mind  is  that  with  the  beginning 
of  the  European  War  the  greatest  source  of  increase  for  our  man 
power  was  cut  off.  We  used  to  get  an  increase  of  a  million  man  power 
a  year  through  immigration.  We  now  get  substantially  nothing. 
Few  people  recognize  the  significance,  in  a  business  and  economic 
sense,  of  this  cutting  off  of  immigration.  The  immigrant  was  almost 
the  only  source  of  what  we  call  "day  labor,"  the  men  who  do  the 
building  and  repairing  of  railroads,  the  mending  of  streets  and  roads, 
mining,  and  the  rough  work  of  steel  mills  and  other  factories.  We 
have  gone  on  as  if  this  source  of  our  labor  were  a  perpetual  fountain. 
We  have  not  stopped  to  consider  the  business  and  economic  and  social 
changes  which  must  come  about  when  the  fountain  runs  dry,  and  we 
are  compelled  to  adapt  ourselves  to  a  condition  very  strange  to  us. 
Moreover,  an  immigrant  raised  to  maturity,  with  all  the  expense  of 
his  nurture  and  training  paid  by  his  own  country,  delivered  at  our 
gates  free  of  charge  as  a  working  unit  of  man  power,  was  a  valuable 
asset. 

After  the  cessation  of  the  accustomed  increase  from  immigration 
the  most  obvious  thing  that  has  happened  to  our  man  power  is  that 
2,000,000  of  it,  between  the  ages  of  twenty-one  and  thirty-one,  have 
gone  into  the  army,  and  are  no  longer  at  their  accustomed  posts  in 
factories,  mines,  offices,  and  farms.  This  2,000,000  is  the  best  of 
our  man  power.  It  was  at  the  age  of  greatest  vitality.  The  loss  of 
it  to  our  industries  is  greater  than  the  mere  figures  indicate.  Two 
million  man  power  (a  year  from  now  it  will  be  3,000,000,  two  years 
from  now  it  will  be  5,000,000)  out  of  our  total  35,000,000  have  ceased 
completely  to  be  normal  producers  of  goods.  Incidentally,  as  soldiers 
they  have  become  larger  consumers  than  they  were  before  of  food, 
clothes,  and  other  materials. 

Here,  then,  is  the  first  subtraction:  2,000,000  from  35,000,000 
leaves  33,000,000.  But  this  is  only  the  first,  and  not  the  largest,  of 
many  subtractions. 

Subtract  another  half  million  for  the  navy. 

Subtract  another  half  million  for  shipbuilding. 

At  this  point  it  might  be  appropriate  to  ask  some  of  the  "business 
as  usual"  advocates  just  how  business  can  be  as  usual,  just  how 
32,000,000  man  power  can  do  the  amount  of  work  and  business  usually 


502  ECONOMICS  OF  WAR 

done  by  35,000,000.  As  a  matter  of  fact,  we  do  not  have  even 
32,000,000  man  power  left  available  for  business  as  usual.  For  the 
deductions  just  pointed  out  are  not  by  any  means  all  the  deductions 
that  have  occurred.  They  are  not  even  the  largest  deductions.  I 
have  set  them  down  first  merely  because  they  are  the  most  obvious. 
They  are  the  best  ones  for  illustrating  the  thing  that  is  happening. 
They  involve  actual  dislocations  of  man  power — men  who  go  away, 
not  only  from  their  accustomed  pursuits,  but  also  from  their  accus- 
tomed homes.  But  it  must  be  remembered  that  man  power  can  be 
diverted  without  being  dislocated.  A  man  may  continue  to  live  in  the 
same  house,  and  use  the  same  pick,  and  work  in  the  same  mine,  and 
get  his  wages  from  the  same  boss;  but  if  the  ton  of  ore  he  digs  finds  its 
ultimate  destination  in  rifles  instead  of  piano  wires,  he  is  a  unit  of 
man  power  subtracted  from  its  normal  uses.  And  these  diversions 
are  enormous. 

As  to  the  precise  number  who  have  gone  and  are  now  going  from 
their  normal  pursuits  into  powder  making  and  bullet  making  and  rifle 
making  and  gun  making  and  the  like,  it  is  not  possible  to  give  figures 
as  exact  as  in  the  case  of  the  army  and  navy.  But  it  is  possible  to 
arrive  at  some  convincing  estimates.  Consider,  for  example,  one 
of  the  minor  war  industries,  airplane  making.  Ultimately,  if  we  do 
what  we  ought  to  do,  we  shall  have  at  least  50,000  aviators  in  France. 
It  is  estimated  that  one  aviator  on  the  fighting  front  will  require 
forty  men  back  of  the  line  for  repairs  and  in  the  factories  as  mechanics 
and  gathering  spruce  and  in  other  ways  producing  the  materials. 
Based  on  that  estimate,  we  shall,  during  the  present  and  coming  year, 
take  another  2,000,000  out  of  our  man  power  for  building  our  air 
fleet,  and  keeping  an  adequate  supply  of  these  unusually  intricate 
and  unusually  breakable  machines  flowing  toward  the  front  in  France. 

But  airplane  making  is  merely  one  of  the  minor  of  the  several  war 
industries  which  are  taking  millions  away  from  the  usual  pursuits 
of  our  normal  35,000,000  of  man  power.  In  one  concern,  Bethlehem 
Steel,  nearly  100,000  employees,  about  90  per  cent,  are  engaged  on 
government  orders.  This  is  fairly  typical  of  the  steel  business  as  a 
whole.  During  May  and  for  three  months  preceding,  85  per  cent  of 
the  entire  steel  trade  of  the  United  States  was  engaged  in  war  work. 
And  until  the  war  ends  this  proportion  is  sure  to  increase  rather  than 
diminish. 

But  it  is  not  necessary  to  go  through  all  the  tedious  computations 
of  the  number  of  our  man  power-  which  has  been  taken  for  powder 


LABOR  AND  THE  WAR  503 

making,  for  shell  making,  for  rifle  making,  and  the  like.  The  figures 
change  from  day  to  day,  and  the  change  is  always  in  the  direction  of 
increase.  The  sum  of  it  is  pretty  accurately  known  to  those  whose 
business  it  is  to  form  expert  judgments  on  such  subjects.  For  example 
it  has  been  pointed  out  that  the  total  amount  of  wealth  produced  in  a 
year  is  about  $40,000,000,000.  Set  down  alongside  this  fact  the  other 
fact  that  the  appropriations  made  by  the  United  States  Government 
for  the  present  year  are  $19,000,000,000.  That  is  to  say,  the  govern- 
ment is  going  to  buy,  for  war  purposes  (allowing  for  some  millions  for 
duplications)  about  one-half  of  the  entire  productive  capacity  of  the 
country.  In  other  words,  the  government  is  going  to  hire  for  war 
work,  and  take  away  from  normal  pursuits,  nearly  one-half  the  entire 
man  power  of  the  country.  That  would  be  between  15,000,000  and 
16,000,000  of  our  man  power.  Others  estimate  the  number,  for  the 
present,  as  somewhat  lower.  They  say  that  although  it  is  true  that 
the  country,  in  an  industrial  way,  is  now  more  than  50  per  cent  at  war, 
various  considerations  reduce  the  total  of  man  power  diverted.  A 
little  later  on,  they  say,  the  diversion  will  amount  to  50  per  cent. 

.  Out  of  all  the  mass  of  figures,  exact  and  estimated,  the  one  net 
fact,  the  " red-ink"  fact,  as  the  accountants  express  it,  is  this:  as 
compared  with  normal  peace-time  production  there  is  a  labor  shortage 
in  the  United  States  of  at  least  15,000,000  man  power.  Such  a  short- 
age from  normal  as  15,000,000  is  not  a  shortage  at  all,  but  a  famine, 
and  it  is  this  famine  in  man  power  which  underlies  all  other  famines. 

Already  "the  farms  are  crying  for  labor.  The  mines  are  crying 
for  labor.  The  shops  are  crying  for  labor.  The  railroads  are  crying 
for  labor.  The  manufactories  are  crying  for  labor.  There  is  shortage 
of  labor  everywhere." 

With  a  shortage  of  15,000,000  man  power,  or  nearly  one-half  of 
our  whole,  it  is  so  obvious  that  we  cannot  have  "business  as  usual" 
that  even  the  most  hopeful  of  the  boosters  must  admit  it.  But  these 
learned  economists  of  the  retail  millinery  and  bric-a-brac  trades  are 
invincible  optimists.  At  this  point  doubtless  they  will  say:  "We!^ 
with  a  50  per  cent  shortage  in  our  man  power  we  can  at  least  have 
business  50  per  cent  as  usual."  But  they  cannot.  Right  here  comes 
the  distinction  between  "essentials  and  nonessentials."  We  are  not 
going  to  be  able  to  get  this  one-half  of  our  man  power  to  fight  the  war 
as  soldiers  and  workmen  by  taking  an  even  half  from  the  production 
of  each  of  our  normal  peace-time  lines  of  goods.  For  there  are  some 
things  we  can't  get  along  without.  There  are  some  of  our  normal 


504  ECONOMICS  OF  WAR 

peace-time  products  which  we  must  have.  Indeed,  in  war  they  are 
more  necessary  to  have  than  in  peace.  These  particular  businesses 
must  go  on  as  usual,  or  above  usual.  These  are  the  essential 
industries.  Of  these  the  biggest  and  most  obvious  is  farming. 

The  farms  of  the  United  States,  this  year  and^so  long  as  the  war 
lasts,  must  supply  food  not  only  for  the  population  which  normally 
depends  on  our  farm  products,  but,  in  addition,  for  large  portions  of 
the  population  of  France,  England,  Italy,  Belgium,  and  some  neutral 
countries.  They  must  do  this  or  some  of  our  Allies  must  starve. 
Now,  farming  is  at  all  times  our  biggest  consumer  of  man  power.  In 
peace  times  the  number  of  man  power  engaged  in  it  is  about  12,000,000 
—about  6,000,000  farm  owners  and  6,000,000  farm  laborers.  Whether 
this  number  of  man  power  engaged  in  farming  has  been  increased 
during  the  war,  I  do  not  know.  It  is  a  fact  that  the  quantity  of  farm 
products  has  been  enlarged.  The  farmers  of  the  United  States  planted 
and  harvested  last  year  the  largest  acreage  on  record.  In  addition 
the  American  farmer  increased  the  number  of  horses  in  the  country 
(in  spite  of  the  shipments  abroad  for  war  purposes) ;  he  raised  more 
cows;  he  raised  more  beef  cattle;  he  raised  more  pigs. 

From  this  it  may  fairly  be  argued  that  the  portion  of  our  man 
power  engaged  in  farming  must  have  increased.  But  assume  that  it 
remains  at  the  normal  12,000,000.  Then  we  have  this  condition: 
About  18,000,000  of  our  man  power  either  has  been  or  soon  will  be 
diverted  for  war;  out  of  the  remaining  18,000,000,  12,000,000  are 
engaged  in  farming.  Seen  in  this  cold  statistical  light,  the  prospects 
of  "business  as  usual"  do  not  look  very  up-and-coming. 

Of  the  18,000,000  man  power  required  for  war,  none  can  be  taken 
from  farming.  They  must  come  from  somewhere  else. 

Now,  there  is  one  other  of  our  great  occupations  which  must  be 
kept  up  to  the  normal  man  power.  It  must  be  kept  up  to  normal;  it 
ought  to  be  increased.  The  railroads  are  a  most  essential  war 
industry.  And  they  are  in  a  bad  way.  We  had  a  transportation 
failure  last  winter  which  caused  us  much  inconvenience  and  held  back 
our  war  work.  Besides,  those  competent  to  speak  about  the  situation 
say  that  the  coal  problem  of  last  winter  was  really  a  transportation 
problem,  that  the  coal  famine  was  due  to  a  lack  of  cars.  The  man 
power  normally  engaged  in  railroad  work  is  about  2,250,000.  The 
late  James  J.  Hill,  before  the  war  began,  said  the  railroads  ought  to 
have  a  billion  dollars  a  year  spent  on  them  for  five  years  to  bring  them 
up  to  good  condition.  That  is  the  same  as  saying  that  even  in 


LABOR  AND  THE  WAR 


505 


peace  times  the  railroads  needed  a  million  more  man  power.  And 
it  is  not  only  the  railroads.  It  is  the  same  in  every  branch  of  the 
transportation  industry. 

Few  people  have  observed  a  most  striking  evolution  that  is  just 
beginning  in  America.  The  Philadelphia  Public  Ledger  carries  two 
columns  of  advertisements  of  daily  motor-truck  express  service 
between  Philadelphia  and  New  York,  with  tri-weekly  services  to 
smaller  cities.  Regularly,  every  day,  640  motor  trucks  carry  freight 
on  schedule  on  the  public  roads  between  New  York  and  Philadelphia. 
The  Post  Office  Department  has  just  inaugurated  daily  motor-truck 
package  services  in  the  country  districts  for  thirty  to  fifty  miles 
outside  Philadelphia,  Baltimore,  and  Washington.  All  this  is  merely 
a  hint  of  what  is  coming.  And  not  only  will  more  man  power  be 
needed  to  build  these  trucks  and  drive  them  and  load  them — that  is 
only  a  fraction  of  the  need.  Of  the  18,000,000  man  power  needed 
for  the  war,  none  can  be  taken  from  the  transportation  industries. 
They  must  come  from  somewhere  else.  With  only  35,000,000  man 
power  to  start  on,  with  15,000,000  of  that  diverted  to  war  work;  with 
12,000,000  engaged  in  farming;  with  2,250,000  engaged  in  trans- 
portation, and  more  needed — under  these  conditions  the  idea  of 
business  as  usual  is  out  of  the  question. 

Beat  the  devil  around  the  bush  as  we  may,  we  shall  always  arrive 
at  the  same  point;  namely,  a  fixed  total  of  35,000,000  man  power,  and 
under  present  conditions  a  shortage  of  from  15,000,000  to  18,000,000. 

That  is  the  main,  central  fact.     That  is  the  essential  truth. 

4.    IMMIGRATION  AND  MAN  POWER 

The  following  figures,  taken  from  the  tables  compiled  by  the 
Commissioner  General  of  Immigration,  indicate  the  influence  exerted 
by  the  war  upon  the  man  power  of  the  country. 


Total 
Immigration 

Farm  Labor 

Other  Unskilled 
Labor 

IOOO  .  . 

^43,84  3 

100,404 

37,6oo 

IQIO.  .  . 

8l7,6lQ 

3  00,48? 

107,3^4 

IOII  .  . 

^I2,o8< 

I74.QO3 

67,371 

IQI2  

401,763 

IQO.S24 

127,496 

IOI?  .  . 

8K.3O1 

334,227 

26,573 

IQI4.  . 

769,276 

291,877 

25,578 

IQIS  •  • 

150,070 

22,858 

125,079 

1016.  . 

1215,041 

21,683 

23,803 

IQI7  .  . 

216,408 

21,683 

23,803 

506  ECONOMICS  OF  WAR 

5.    WHAT  ORGANIZATION  OF  THE  LABOR  MARKET 

CAN  DO1 

When  the  announcement  was  made  that  a  soldiers'  cantonment 
was  to  be  built  in  Ohio,  at  Chillicothe,  and  that  some  20,000  workers 
would  be  needed  to  build  the  camp  in  the  time  allotted  by  the  govern- 
ment contract,  the  state  was  ready  with  an  organization  to  handle  the 
project.  It  had  a  double  problem:  first  how  to  get  the  men,  and  then 
to  make  sure  that  the  industries  of  the  state  would  not  be  dislocated 
by  the  withdrawal  of  such  a  large  force  for  army  work. 

Ohio's  director  of  employment  tackled  both  of  these  problems 
with  characteristic  vigor.  He  went  immediately  to  the  military 
authorities  and  to  the  contractor  who  was  to  build  the  camp  and 
offered  the  services  of  Ohio's  employment  system  in  securing  the 
necessary  help.  He  warned  them  of  the  dangers  of  promiscuous 
advertising  for  help,  told  them  how  it  would  endanger  operations  of 
other  industries,  how  men  might  be  led  'to  the  camp  for  whom  there 
was  no  work  at  all,  and  how  an  oversupply  of  labor  might  be  created 
at  the  camp  while  yet  the  particular  kind  of  skill  needed  might  not  be 
there.  The  management,  of  course,  wanted  to  be  sure  that  it  could 
get  all  the  labor  that  would  be  necessary,  and  when  the  director  of 
employment,  who  knows  the  labor  market  conditions  of  the  state 
thoroughly,  practically  guaranteed  to  deliver  all  the  necessary  labor, 
the  contractor  and  the  military  authorities  agreed  to  hire  all  their 
help  through  the  employment  service  of  the  state.  All  the  men  sent 
to  work  at  the  camp  would  be  consigned  to  the  public  employment 
office  located  in  Chillicothe  and  a  branch  office  was  established  at  the 
cantonment  about  two  miles  from  town. 

As  soon  as  the  arrangement  had  been  made  and  even  before  the 
work  of  building  had  been  begun,  the  central  office  at  Columbus  sent 
instructions  to  all  the  twenty-one  offices  in  the  state  explaining  the 
method  by  which  the  labor  force  would  be  supplied,  and  listing  the 
kinds  of  workers  that  would  probably  be  needed.  Each  office  was 
requested  to  begin  registering  men  who  would  want  to  go  to  the  camp 
to  work.  All  those  registered  were  to  hold  themselves  in  readiness  to 
go  to  Chillicothe  promptly  when  notified.  To  get  men  to  register, 

1  By  William  M.  Leiserson.  Adapted  from  "The  Labor  Shortage  and  the 
Organization  of  the  Labor  Market,"  The  Survey,  XL,  65-66.  Copyright  by  the 
Survey  Associates,  Inc.,  in  1918. 

ED.  NOTE. — Mr.  Leiserson  is  a  close  student  of  American  labor  problems  and 
has  contributed  many  valuable  articles  to  scientific  magazines. 


LABOR  AND  THE  WAR  507 

labor  unions  of  the  various  trades  needed  were  communicated  with, 
notices  were  posted  in  the  employment  offices,  and  advertisements 
were  inserted  in  newspapers,  carefully  guarded  to  prevent  men  from 
going  directly  to  the  cantonment  and  flooding  the  town  before  the 
work  began. 

When  the  work  was  about  to  begin  the  builders  of  the  camp 
notified  the  Chillicothe  employment  office  that  on  a  certain  day  they  • 
would  need  so  many  hundred  laborers  and  carpenters  and  gave  the 
wages  and  other  terms  of  employment.  This  information  was 
immediately  telephoned  to  the  central  office  in  Columbus,  and  the 
director  went  over  the  reports  from  his  branches  to  see  from  what 
offices  he  could  draw  the  necessary  men  to  fill  this  order.  To  the 
superintendents  of  the  employment  offices  which  were  in  a  position 
to  supply  the  help,  he  wired  to  begin  sending  laborers  and  carpenters, 
giving  each  his  quota  as  to  how  many  were  wanted  from  his  office  and 
asking  each  to  report  that  same  day  how  many  were  sent  before  the 
close  of  business.  Within  a  few  hours  men  were  moving  to  Chillicothe 
in  an  orderly  fashion,  with  definite  assurances  of  work  when  they  got 
there  and  of  the  terms  on  which  they  would  be  employed.  And  that 
same  evening  the  central  office  in  Columbus  knew  how  many  men  had 
been  sent  by  each  office.  In  the  morning  the  Chillicothe  office 
reported  as  to  how  the  men  were  arriving  as  well  as  the  additional 
needs  of  the  camp  management.  The  director  was  then  in  a  position 
to  notify  the  branch  offices  how  many  men  they  would  each  be 
expected  to  send  that  day.  In  about  twelve  weeks  over  17,000  men 
were  in  this  way  sent  to  work  at  the  Chillicothe  encampment  from 
the  state  offices. 

It  was  not  always  possible  to  keep  those  who  were  hiring  the  men 
to  abide  by  their  agreement  to  employ  labor  only  through  the  employ- 
ment offices.  They  feared  constantly  that  they  would  not  get  enough 
help.  They  were  accustomed  to  advertising  for  thousands  of  men  and 
getting  a  hundred,  and  they  could  not  feel  confidence  in  an  organiza- 
tion that  claimed  ability  to  supply  all  labor  as  needed.  Unknown  to 
the  employment  offices  they  sent  agents  out  to  try  to  get  help.  This 
-confused  matters  for  a  while.  But  the  number  who  came  to  work  at 
the  camp  without  going  through  the  employment  offices  did  not 
exceed  one-fifth  of  the  total  employed.  Then  they  feared  they 
would  not  get  the  help  fast  enough,  and  they  insisted  on  paying  trans- 
portation for  the  men.  In  vain  did  the  director  of  employment  assure 
them  that  all  the  men  would  be  forthcoming,  that  plenty  could  be 


508  ECONOMICS  OF  WAR 

secured  from  within  the  state  and  that  any  workers  who  could  not 
pay  the  two  or  three  dollars  to  go  to  Chillicothe  would  not  be  much 
good  and  would  not  be  steady  employes.  In  all  probability  the 
nature  of  the  contract — cost  plus  a  percentage — had  something  to  do 
with  the  insistence  on  paying  transportation  charges.  At  any  rate 
about  $10,000  was  spent  in  this  way  and  as  a  result  the  "turnover" 
of  labor  was  unnecessarily  increased.  The  directors  of  Ohio's  employ- 
ment system  were  able  to  prevent  paying  fares  for  men  to  come  from 
outside  the  state;  but  within  the  state,  carpenters,  plumbers,  and  other 
skilled  men  earning  more  than  $6  a  day,  as  well  as  laborers,  had  their 
fare  paid  to  the  job. 

With  all  of  these  difficulties  the  Ohio  employment  system  was 
nevertheless  able  to  demonstrate  the  great  saving  and  efficiency  that 
might  be  secured  by  hiring  labor  through  a  centralized  organization 
that  could  control  the  supply.  The  labor  "turnover"  was  much 
smaller  than  on  most  jobs  of  the  kind,  the  work  did  not  suffer  for  lack 
of  labor,  and  no  oversupply  was  attracted  to  the  city. 

But  Ohio's  employment  service  was  not  satisfied  with  all  this. 
While  it  was  still  engaged  in  shipping  men  to  the  camp  it  began  to 
work  on  plans  for  distributing  that  army  of  20,000  workers  over  the 
state  when  this  work  at  the  camp  should  be  finished.  Agents  were 
sent  to  Chillicothe  to  register  men  as  they  were  preparing  to  quit 
and  instructions  were  issued  to  all  the  branch  employment  offices  to 
visit  employers  in  their  communities,  tell  them  of  the  classes  of  labor 
that  would  soon  be  released,  and  get  orders  for  help  that  could  be 
supplied  from  Chillicothe.  Lists  of  the  men  working  at  Chillicothe 
were  made,  with  their  occupations  and  experience,  and  sent  to  each  of 
the  employment  offices.  These  offices  learned  the  demand  from 
employers  in  their  cities  for  the  various  classes  of  labor,  and  made 
arrangements  for  getting  the  men  from  Chillicothe.  In  this  way  the 
workers  at  the  army  camp  are  now  being  distributed  in  an  orderly 
manner  and  all  the  idleness  and  waste  that  ordinarily  follow  the 
completion  of  a  big  project  of  this  kind  are  eliminated. 

6.     UNITED  STATES  EMPLOYMENT  SERVICE1 

For  more  than  a  year  it  has  been  our  pride  that  not  our  armies  and 
navies  only  but  our  whole  people  is  engaged  in  a  righteous  war.  We 
have  said  repeatedly  that  industry  plays  as  essential  and  honorable 

1  By  Woodrow  Wilson.    The  President's  Announcement,  June  17,  1918. 


LABOR  AND  THE  WAR  509 

a  role  in  this  great  struggle  as  do  our  military  armaments.  We  all 
recognize  the  truth  of  this,  but  we  must  also  see  its  necessary  implica- 
tions— namely,  that  industry,  doing  a  vital  task  for  the  nation,  must 
receive  the  support  and  assistance  of  the  nation.  We  must  recognize 
that  it  is  a  natural  demand — almost  a  right — of  anyone  serving  his 
country,  whether  employer  or  employe,  to  know  that  his  service  is 
being  used  in  the  most  effective  manner  possible.  In  the  case  of 
labor  this  wholesome  desire  has  been  not  a  little  thwarted  owing  to 
the  changed  conditions  which  war  has  created  in  the  labor  market. 

There  has  been  much  confusion  as  to  essential  products.  There 
has  been  ignorance  of  conditions — men  have  gone  hundreds  of  miles 
in  search  of  a  job  and  wages  which  they  might  have  found  at  iheir 
doors.  Employers  holding  government  contracts  of  the  highest 
importance  have  competed  for  workers  with  holders  of  similar 
contracts,  and  even  with  the  government  itself,  and  have  conducted 
expensive  campaigns  for  recruiting  labor  in  sections  where  the  supply* 
of  labor  was  already  exhausted.  California  draws  its  unskilled  labor 
from  as  far  east  as  Buffalo,  and  New  York  from  as  far  west  as  the 
Mississippi.  Thus,  labor  has  been  induced  to  move  fruitlessly  from 
one  place  to  another,  congesting  the  railways  and  losing  both  time 
and  money. 

Such  a  condition  is  unfair  alike  to  employer  and  employe,  but 
most  of  all  to  the  nation  itself,  whose  existence  is  threatened  by  any 
decrease  in  its  productive  power.  It  is  obvious  that  this  situation 
can  be  clarified  and  equalized  by  a  central  agency — the  United  States 
Employment  Service  of  the  Department  of  Labor,  with  the  counsel 
of  the  War  Labor  Policies  Board  as  the  voice  of  all  the  industrial 
agencies  of  the  government.  Such  a  central  agency  must  have  sole 
direction  of  all  recruiting  of  civilian  workers  in  war  work  and,  in  taking 
over  this  great  responsibility,  must  at  the  same  time  have  power  to 
assure  to  essential  industry  an  adequate  supply  of  labor,  even  to  the 
extent  of  withdrawing  workers  from  nonessential  production.  It 
must  also  protect  labor  from  insincere  and  thoughtless  appeals  made 
to  it  under  the  plea  of  patriotism,  and  assure  it  that,  when  it  is  asked 
to  volunteer  in  some  priority  industry,  the  need  is  real. 

Therefore,  I,  Woodrow  Wilson,  President  of  the  United  States  of 
America,  solemnly  urge  all  employers  engaged  in  war  work  to  refrain 
after  August  i,  1918,  from  recruiting  unskilled  labor  in  any  manner 
except  through  this  central  agency.  I  urge  labor  to  respond  as 
loyally  as  heretofore  to  any  calls  issued  by  this  agency  for  voluntary 


510  ECONOMICS  OF  WAR 

enlistment  in  essential  industry.  And  I  ask  them  both  alike  to 
remember  that  no  sacrifice  will  have  been  in  vain,  if  we  are  able  to 
prove  beyond  all  question  that  the  highest  and  best  form  of  efficiency 
is  the  spontaneous  co-operation  of  a  free  people. 

7.    THE  NEED  OF  HOUSING 

A.      A   SHIPBUILDER   SPEAKS1 

I  should  like  to  call  attention  to  the  need  of  an  adequate  govern- 
ment program  for  the  housing  of  new  employees  of  shipyards,  muni- 
tion factories,  etc.  A  committee  of  the  Council  of  National  Defense 
has  reported  favorably  on  the  building  of  such  houses  by  the  govern- 
ment, but  congressional  action  is  needed,  and  the  President  should 
be  made  to  feel  that  public  opinion  would  be  behind  the  government 
in  undertaking  this  radical  policy. 

As  president  of  the  Newburgh  Shipyards,  Inc.,  engaged  in  build- 
ing steel  ships  for  the  government,  I  have  had  enormous  difficulties 
to  contend  with  in  securing  enough  labor  to  come  to  Newburgh,  N.Y., 
on  account  of  the  great  shortage  of  houses  there.  In  the  next  two 
months  we  shall  need  two  thousand  more  employees  to  man  our  ship- 
yard properly,  and  there  is  not  a  vacant  house  in  Newburgh  in  which 
to  put  them.  The  same  conditions,  or  worse,  are  present  at  many 
other  shipyards  and  munition  factories.  For  efficient  operation  of 
the  industries,  the  workmen  must  be  taken  care  of  in  decent  houses. 

Private  capital  cannot  be  expected  to  build  these  houses  now. 
England  met  a  similar  situation  last  year  by  appropriating  fifty 
million  dollars  for  government  housing  projects.  At  least  a  hundred 
million  dollars  is  needed  immediately  in  America  for  the  same  purpose. 
This  will  not  be  a  Socialistic  venture;  it  will  be  a  war  measure  of  the 
utmost  importance. 

B.      CONDITIONS  IN   NEW  ORLEANS2 

I  speak  of  conditions  here  in  New  Orleans  with  which  I  am  most 
familiar,  and  of  the  period  immediately  preceding  our  entrance  into 
the  war.  Unskilled  labor  was  earning  then  from  $i .  50  to  $2  .00  a  day, 
perhaps  $40.00  a  month  on  the  average  after  deducting  time  lost; 
making  the  payment  of  even  $8 .00  a  month  rent  a  difficult  matter  for 

1  By  Thomas  C.  Desmond.    A  letter  published  in  The  New  Republic,  XIII 
(November  24,  1917),  98. 

2  By  Roland  Otis.     Adapted  from  a  letter  published  in  The  New  Republic, 
XIII  (December  22,  1917),  216. 


LABOR  AND  THE  WAR  511 

a  man  of  family,  while  it  was  not  possible  to  rent  a  small  four-room 
and  bath  house  for  less  than  $16.00 — just  double  of  what  he  could 
afford  to  pay. 

I  have  tried,  myself,  to  plan  a  small  four-room  house  that  would 
be  within  the  means  of  the  better  paid  laborer,  at  least;  but  I  found 
that  a  house  of  the  simplest  kind,  with  two  very  small  independent 
bedrooms,  bath,  living-room,  and  kitchen,  with  everything  eliminated 
but  the  absolutely  essential,  could  not  be  built  for  less  than  $1,500,  to 
which  must  be  added  the  cost  of  a  site,  say  $200,-  a  total  investment  of 
$1,700;  allowing  6  per  cent  on  the  investment  and  adding  taxes 
(3  per  cent  on  80  per  cent  of  value),  depreciation,  and  repairs,  lost 
rents,  etc.,  these  costs  would  call  for  a  rent  of  about  $17  a  month. 
That  my  costs  were  not  unreasonably  high  is  confirmed  by  the 
prevailing  rents  here  for  small  houses — for  a  four-room  house  without 
bath,  with  the  rooms  arranged  one  behind  the  other  (making  the 
bedrooms  mere  passage-ways  to  the  back  of  the  house),  and  toilet 
in  the  backyard,  the. rent  is  $12  to  $13;  the  same  type  of  house  with 
bath  and  porch  rents  for  $16  to  $17,  with  very  few  of  these  last  being 
built  because  they  fail  to  earn  7  per  cent,  the  current  rate  of  interest 
here  on  small  property.  It  .is  certain  that  here  in  New  Orleans  the 
unskilled  laborer  finds  it  impossible  to  live  in  a  decent  house;  even 
if  his  wife  works,  the  most  they  can  hope  for  is  to  occupy  one  of  the 
$12  a  month  houses — houses  inadequately  ventilated  and  flimsily 
built,  red  hot  in  summer  and  cold  as  outdoors  in  winter,  with  no 
privacy  for  the  bedroom,  no  bath,  and  the  toilet  in  the  backyard. 

In  other  parts  of  the  United  States  conditions  do  not  seem  to  be 
very  different:  the  Octavia  Hill  Association,  of  Philadelphia,  although 
buying  the  land  at  wholesale  and  building  a  group  of  forty  houses  at 
once,  eliminating  all  profits  of  land  speculators  or  building  con- 
tractors, building  houses  of  the  simplest  character  without  a  dollar 
wasted  anywhere,  have  not  been  able  to  earn  the  current  rate  of 
interest  on  their  investment;  the  experience  of  the  Woodlawn  Co.,  of 
Wilmington,  Del.,  is  similar,  as  is  also  that  of  the  Washington  Sanitary 
Housing  Co.  and  of  other  semi-benevolent  companies  whose  state- 
ments I  have  seen.  They  have  all  failed  to  earn  adequate  dividends, 
and  it  has  been  very  difficult  for  them  to  enlist  additional  capital  for 
any  new  construction.  It  is  true  some  large  employers  of  labor  are 
furnishing  good  housing  at  rents  within  the  reach  of  their  unskilled 
labor;  but  it  is  certain  they  cannot  be  earning  the  current  rate  of 
interest  on  the  investment;  and  at  the  best,  the  number  of  laborers 


512  ECONOMICS  OF  WAR 

so  housed  constitutes  an  inconsiderable  fraction  of  the  total  number, 
and  can  have  little  if  any  influence  on  the  solution  of  the  problem. 

The  problem  of  decent  housing  for  our  laborers  will  never  be 
solved  by  private  enterprise,  although  the  much  berated  land  sharks, 
speculative  builders,  and  selfish  manufacturers  have  little  if  anything 
to  do  with  our  failure.  The  reason  is  simple  enough — our  laborers  do 
not  earn  enough  to  pay  for  decent  housing.  If  they  cannot  earn  more 
than  they  have  been  earning  in  the  past,  then  they  must  continue  to 
be  housed  like  cattle;  that  is  all,  unless  the  state  is  prepared  to  pay 
part  of  the  cost  of  housing  as  it  now  pays  for  education  and  medical 
attention.  It  is  a  very  large  question,  and  we  surely  need  all  the  help 
that  we  can  get  from  the  English  experiments  in  housing  the  munition 
workers. 

LIX.     War-Time  Labor  Conditions  and  Policies 

i.    INDUSTRIAL  UNREST  IN  GREAT  BRITAIN1 

A  comparison  of  the  reports  shows  that  there  is  a  strong  feeling  of 
patriotism  on  the  part  of  employers  and  employed  throughout  the 
country  and  they  are  determined  to  help  the  state  in  its  present  crisis. 
Feelings  of  a  revolutionary  character  are  not  entertained  by  the  bulk 
of  the  men.  On  the  contrary,  the  majority  of  the  workmen  are 
sensible  of  the  national  difficulties,  especially  in  the  period  of  trial 
and  stress  through  which  we  are  now  passing. 

While  the  eight  reports  agree  as  to  the  main  causes  of  industrial 
unrest,  important  differences  appear  in  the  emphasis  laid  by  the 
various  commissions  upon  specific  causes. 

i.  All  the  commissions  put  in  the  forefront,  as  the  leading  cause 
of  unrest,  the  fact  that  the  cost  of  living  has  increased  disproportion- 
ately to  the  advance  in  wages,  and  that  the  distribution  of  food 
supplies  is  unequal.  Commissioners  are  unanimous  in  regarding  this 
as  the  most  important  of  all  causes  of  industrial  unrest.  Not  only 

'By  the  Rt.  Hon.  G.  N.  Barnes,  M.P.  Adapted  from  "Summary  of  the 
Reports"  of  the  several  divisional  committees  appointed  by  the  Prime  Minister 
"to  enquire  into  and  report  upon  industrial  unrest."  The  summary  was  presented 
to  the  Prime  Minister,  July  17, 1917.  The  report  as  a  whole,  including  the  separate 
reports  from  particular  districts,  has  been  republished  under  the  title  "Industrial 
Unrest  in  Great  Britain,"  as  Bulletin  No.  237,  pp.  0-14,  by  the  United  States  Depart- 
ment of  Labor  Statistics. 

ED.  NOTE. — G.  N.  Barnes  (1859 — )  has  been  Pensions  Minister  since  1916. 
In  1917  he  was  made  a  member  of  the  War  Cabinet. 


LABOR  AND  THE  WAR  513 

is  it  a  leading  cause  of  unrest  in  itself,  but  its  existence  in  the  minds 
of  the  workers  colors  many  subsidiary  causes,  in  regard  to  which,  in 
themselves,  there  might  have  been  no  serious  complaint. 

2.  The  operation  of  the  Munitions  of  War  act  has  undoubtedly 
been  a  serious  cause  of  unrest,  in  particular  the  restriction  upon  a 
workman  as  regards  the  selection  of  his  sphere  of  labor.     If  the 
leaving-certificate  restriction  is  removed  the  leading  cause  of  dis- 
satisfaction under  this  heading  will  cease  to  exist.     There  will  still 
remain,  however,  one  element  which  is  very  important,  because  it 
projects  itself  into  the  after-war  settlement.    That  is  the  complaint 
that  sufficient  attention  is  not  being  paid  by  employers  to  article  7 
of  Schedule  n  of  the  1914  act.     Changes  of  working  conditions,  more 
especially  the  introduction  of  female  labor,  have  been  made  without 
consultation  with  the  work  people. 

3.  All  the  reports  refer  in  general  terms  to  what  is  called  the  want 
of  co-ordination  between  government  departments  dealing  with  labor; 
but  probably  much  of  what  is  said  on  this  head  may  have  been  written 
under  a  misconception  and  without  a  clear  understanding  of  depart- 
mental administration.     It  seems  hardly  possible  that  any  single 
department  could  during  the  war  carry  the  whole  of  the  immense 
problems  of  the  supply  departments  which  have  bearing  upon  the 
control  of  labor.     Apart  from  the  suggestion  that  one  central  authority 
should  be  set  up,  the  reports  contain  proposals  for  the  formation  of 
informal  local  boards  to  settle  local  disputes,  or  for  the  appointment 
of  a  local  commissioner  with  technical  knowledge  to  settle  disputes 
other  than  those  arising  on  questions  of  wages.     A  proposal  which 
finds  general  favor  is  that  workshop  committees  should  be  set  up. 

4.  Causes  of  unrest  which  are  reported  as  acute  in  certain  districts, 
but  are  not  universal,  include: 

a)  The  want  of  sufficient  housing  accommodation  in  congested 
areas — especially  in  Scotland,  Wales,  the  Northeast,  and  certain  parts 
of  the  Northwest  and  Southwest  areas. 

b)  The  liquor  restrictions,  which  operate  as  a  cause  of  unrest  in 
some  districts  but  not  in  others.     For  example,  in  the  West  Midlands 
area  the  need  for  a  further  supply  of  beer  of  an  acceptable  quality  is 
urgent,  and  to  some  extent  the  same  is  true  in  London  and  Swansea; 
on  the  other  hand,  in  Scotland  the  subject  was  never  mentioned. 

c)  Industrial  fatigue,  which  is  not  a  universal  cause  of  unrest. 
There  is  a  general  consensus  of  opinion  that  Sunday  and  overtime 
labor  should  be  reduced  to  a  minimum,  that  holidays  should  not  be 


514  ECONOMICS  OF  WAR 

curtailed,  and  that  the  hours  of  work  should  not  be  such  as  to  exclude 
opportunities  for  recreation  and  amusement. 

5.  The  great  majority  of  the  causes  of  industrial  unrest  specified  in 
the  reports  have  their  root  in  certain  psychological  conditions.    Want 
of  confidence  is  a  fundamental  cause,  of  which  many  of  the  causes  given 
are  merely  manifestations.     It  shows  itself  in  the  feeling  that  there 
has  been  inequality  of  sacrifice,  that  the  government  has  broken 
solemn  pledges,  that  the  trade-union  officials  are  no  longer  to  be  relied 
upon,  and  that  there  is  a  woeful  uncertainty  as  to  the  industrial 
future.    The  reports  abound  in  instances  of  the  prevailing  feeling 
that  pledges  are  no  longer  observed  as  they  were  in  pre-war  days. 
Allusions  to  "scraps  of  paper"  are  painfully  numerous.     Perhaps 
sufficient  allowance  has  not  been  made  for  the  difficulties  which  have 
beset  all  in  authority  through  the  ever-changing  phases  of  industrial 
conditions  owing  to  the  war. 

6.  The  reports  bear  a  striking  testimony  to  the  value  of  the  pro- 
posals made  in  the  report  of  the  subcommittee  of  the  reconstruction 
committee,  dealing  with  the  relations  of  employers  and  employed. 
Broadly  speaking,  the  principles  laid  down  appear  to  have  met  with 
general  approval. 

2.    THE  EFFECTS  OF  THE  WAR  UPON  BRITISH  LABOR1 

I.   THE  LOYALTY  OF  ORGANIZED  LABOR 

We  have  first  to  notice  the  extent  to  which  the  British  labor  move- 
ments has,  almost  whole-heartedly,  supported  the  war.  The  whole- 
hear  tedness  and  loyalty  with  which  the  British  trade  unions  (which 
have  over  four  million  members  and  .accumulated  funds  exceeding 
six  million  pounds  sterling)  have  supported  the  war  has  been  made 
manifest,  first,  by  their  devoted  assistance  in  the  voluntary  recruiting 
for  the  army,  and,  secondly,  by  their  abandonment  for  the  sake  of 
increasing  the  output  of  munitions,  etc.,  of  all  trade  union  rules  and 
practices  that  could  be  thought  to  hamper  the  production  of  munitions 
of  war. 

When  it  became  evident  that  an  enormously  increased  output  of 
munitions  of  war  was  required,  the  trade  unions  were  asked  by  the 
government  to  give  up,  for  the  duration  of  the  war,  all  their  rules  and 
customs  in  any  way  interfering  with  maximum  production.  Without 

1  By  Sidney  Webb  (see  p.  451).  Adapted  from  "British  Labor  under  War 
Pressure,"  North  American  Review,  CCV,  874-84.  Copyright,  1917. 


LABOR  AND  THE  WAR  515 

a  single  exception  the  trade  unions  agreed  to  this  request.  They 
formally  laid  aside  all  restriction  of  output;  all  limitation  of  the 
working  day;  all  refusal  to  work  overtime,  at  night  or  on  Sunday; 
all  objection  to  the  introduction  of  labor-saving  machinery;  all 
resistance  to  the  admission  to  their  trades  of  non-unionists,  unap- 
prenticed  men,  laborers,  boys,  and  even  women;  all  opposition  to  the 
substitution  of  piecework  payments  for  hourly  rates,  and  all 
reluctance  to  co-operate  in  teams  as  component  parts  instead  of  each 
workman  completing  his  own  task.  They  gave  up  the  right  to  strike 
and  submitted  to  compulsory  arbitration.  They  even  accepted  in 
the  Munitions  of  War  Acts  of  1915  and  1916,  in  order  to  secure  con- 
tinuity of  production,  the  position  of  being  forbidden  to  leave  their 
employment  under  a  heavy  penalty.  Never  has  there  been,  in  any 
community,  a  greater  or  a  more  complete  sacrifice  for  the  common 
good.  The  result  has  been  that — at  the  cost  of  greatly  increased 
hours  of  labor  and  greatly  increased  strain  and  effort  of  the  manual 
workers — the  output  per  operative  has  been  enormously  increased 
throughout  the  whole  kingdom,  by  means  of  a  great  increase  of 
machinery.  By  this  sacrifice  on  the  part  of  the  British  labor  move- 
ment British  manufacturing  industry  has  been,  in  these  two  years  of 
war,  very  largely  revolutionized — more  completely  changed  in  fact 
than  at  any  time  since  the  great  industrial  revolution  of  1780-1825. 

II.      ECONOMIC   POSITION   OF   WAGE-EARNING   CLASS 

Having  noted  the  patriotic  efforts  of  the  British  labor  movement, 
we  have  now  to  record  the  results  of  the  war  on  the  economic  position 
of  the  wage-earning  class.  This  war  has,  at  almost  all  points,  baffled 
the  prophets;  and  in  no  department  have  the  results  been  more 
unexpected  than  in  the  economic  field.  Thus,  all  previous  wars  of 
magnitude  have  been  accompanied  by  terrible  financial  suffering 
among  the  mass  of  the  people.  One  of  their  most  frequent  results — 
a  social  injury  enduring  for  a  whole  generation — has  been  the  degrada- 
tion of  the  standard  of  life  among  the  wage  earners.  The  last  war 
waged  by  the  United  Kingdom  on  anything  like  the  scale  of  the  present 
Armageddon — the  Napoleonic  conflict  that  lasted  almost  unceasingly 
from  1793  to  1815 — reduced  the  British  working  class  to  a  very  general 
destitution,  exhausted -popular  savings,  filled  the  prisons,  brought 
down  wages  to  the  barest  subsistence  level,  and  destroyed  for  many 
years  every  vestige  of  either  industrial  or  political  power  among  the 
wage-earning  class.  On  the  outbreak  of  the  present  war  many  people 


516  ECONOMICS  OF  WAR 

naturally  expected  widespread  unemployment  and  distress  among 
practically  all  the  poorer  classes.  The  trade  unions,  it  was  said, 
would  soon  be  bankrupt  and  powerless.  The  political  influence  of 
organized  labor,  it  was  predicted,  would  be  swept  aside  as  completely 
as  its  industrial  strength.  The  great  Co-operative  Movement,  with 
its  network  of  distributive  stores  and  growing  manufacturing  depart- 
ments, would,  it  was  supposed,  suffer  at  least  an  arrest  of  development, 
and  might  have  its  resources  seriously  impaired.  The  Friendly 
Societies,  entangled  in  the  gigantic  scheme  of  National  Insurance, 
would,  it  was  feared,  find  their  accumulated  funds  drained  dry.  In 
short,  many  people  looked,  on  the  outbreak  of  war,  for  ruin  and  misery 
among  the  mass  of  the  working  people.  Certainly,  no  one  would 
have  predicted  that,  after  a  war  of  such  magnitude  and  intensity  had 
been  waged  for  over  two  and  one-half  years,  the  wage-earning  popula- 
tion of  the  United  Kingdom  would  find  itself,  as  a  whole,  actually 
better  off  financially  than  it  was  in  the  years  of  prosperity  that  imme- 
diately preceded  the  war.  Yet  this  is  today  undoubtedly  the  fact. 

In  spite  of  a  rise  of  prices  of  foodstuffs  now  approaching  100  per 
cent;  in  spite  of  an  average  increase  in  the  total  cost  of  living  of  the 
typical  wage-earning  family  which  may  be  put  at  60  to  70  per  cent; 
in  spite  of  the  levy  of  new  taxation  on  the  wage-earning  class  to  the 
extent,  it  is  estimated,  of  at  least  fifty  millions  sterling  per  annum, 
there  is  every  sign  of  the  British  manual  working  class,  taken  as  a 
whole,  being  considerably  better  off  in  1917  than  in  1913.  Money 
wages  have  risen,  practically  everywhere,  in  one  form  or  other, 
sometimes  only  by  10  or  20  per  cent,  but  in  exceptional  instances  by 
60  or  80  per  cent.  It  is  true  that  the  rates  of  wages  have  never  (or 
hardly  ever)  risen  to  the  same  extent  as  the  prices  of  commodities,  or 
the  cost  of  living.  But,  with  relatively  few  exceptions,  the  average 
family  income  has  increased  more  than  the  rate  of  wages.  More 
members  of  the  household  are,  in  most  families,  earning  money — there 
are  no  unemployed  men,  and  no  intervals  in  which  no  wages  are 
earned;  the  girls  are  at  work  as  well  as  the  boys,  the  superannuated, 
and  the  invalids;  in  hundreds  of  thousands  of  cases  the  wives  as  well 
as  the  spinsters  and  widows.  Moreover,  piecework  earnings  have 
been  widely  substituted  for  fixed  weekly  wages;  there  has  been  a  free 
advancement  of  laborers  and  of  women  from  unskilled  to  skilled  rates; 
the  working  hours  have  often  been  lengthened,  bringing  increased 
earnings;  and  overtime  and  Sunday  duty  have  been  freely  adopted 
up  to  the  very  verge  of  excessive  strain.  The  loss  of  family  income 


LABOR  AND  THE  WAR  517 

consequent  on  the  absorption  of  five  million  men  into  the  army  and 
navy  has  been  made  good  by  the  payment  from  public  funds  of. 
separation  allowances  and  pensions  on  a  scale  of  quite  unprecedented 
liberality.  The  disabled  soldiers,  in  particular,  of  whom  already 
many  tens  of  thousands  have  been  discharged,  are  being  provided  for 
in  ways  unknown  in  any  previous  campaign. 

The  total  result  is  that,  while  a  considerable  number  of  cases  of 
individual  suffering  exist,  taking  the  wage-earning  population  of  the 
United  Kingdom  as  a  whole,  far  from  feeling  the  strain  of  war  it 
exhibits  today  every  indication  of  unparalleled  prosperity. 

III.      BRITISH   LABOR  POLICY 

This  remarkable  result,  so  far,  of  such  a  calamity  as  the  present 
war,  has,  of  course,  not  "come  about  of  itself."  It  has  been  the 
outcome  of  the  measures  which  have  been  deliberately  taken  by  the 
government  and  Parliament,  supported  generally  by  public  opinion, 
and  acquiesced  in  by  the  employers  and  the  propertied  classes.  And 
this  policy  of  deliberately  maintaining  unimpaired,  at  whatever  cost 
to  the  Treasury,  the  standard  of  life  of  the  manual  working  wage 
earners — in  consonance  with  the  teaching  of  the  political  economists 
that  any  degradation  of  this  standard  of  life  is  the  worst  injury  that  a 
nation  can  suffer — has  undoubtedly  been  made  possible,  as  an  achieve- 
ment of  economic  statesmanship,  only  by  the  industrial  and  political 
strength,  and  the  persistent  pressure,  of  the  British  labor  movement. 

The  measures  taken  as  the  outcome  of  this  economic  statesman- 
ship have  been  many  and  varied. 

We  must  note,  to  begin  with,  the  definite  refusal  to  allow  any  use 
to  be  made,  for  any  war  need,  of  the 'demoralizing  machinery  of  the 
Poor  Law,  which  has  lost  all  credit  and  has  for  a  decade  merely  been 
awaiting  abolition  in  favor  of  up-to-date  separate  organizations  for 
the  appropriate  treatment  of  the  lunatic,  the  sick,  the  widows  and 
orphans,  and  the  unemployed.  What  the  British  labor  movement 
demanded,  and  what  public  opinion  indorsed,  was  a  policy  of  pre- 
vention instead  of  relief.  Under  the  apprehension  of  widespread 
unemployment  and  distress,  a  new  organization,  entirely  unconnected 
with  the  Poor  Law,  was  set  up  throughout  the  whole  Kingdom  in 
August,  1914,  in  connection  with  the  municipal  and  county  authorities, 
and  a  fund  was  raised  by  voluntary  subscriptions  to  supplement  the 
public  assistance  that  the  government  undertook  to  provide  from 
moneys  to  be  voted  by  Parliament.  The  government  adopted  as  its 


Si8  ECONOMICS  OF  WAR 

policy,  as  demanded  by  the  whole  labor  movement,  the  strengthening 
of  the  labor  market  by  the  immediate  undertaking  by  the  local 
authorities  of  those  public  works  of  definite  utility  that  might  other- 
wise have  been  executed  during  the  ensuing  decade. 

This  marks  an  epoch  in  the  history  of  unemployment  in  the 
United  Kingdom.  Within  a  few  weeks,  however — before  the  new 
policy  of  prevention  could  be  put  into  force,  and  even  before  it  was 
commonly  understood — it  became  evident  that  no  widespread  unem- 
ployment among  men  was  to  be  feared.  Unemployment  among 
women  workers  lasted  for  a  few  months,  during  which  it  was  sought  in 
pursuance  of  a  like  policy,  not  to  start  the  old  eleemosynary  "relief 
works,"  but  to  organize  public  orders,  and  where  necessary  to  supply 
full  maintenance  to  the  women  who  could  not  immediately  get 
employment,  conditional  on  their  attending  at  centers  for  domestic 
economy  and  other  training.  For  the  last  two  years  the  difficulty  has 
been  to  get  enough  workers;  and  the  greater  part  of  the  fund  sub- 
scribed is  hoarded  for  use  when  peace  comes. 

The  influence  of  the  changed  opinions  on  economic  matters,  and 
of  the  strength  of  the  organized  labor  movement,  is  seen  in  the 
remarkable  series  of  government  decrees  by  which  the  workers' 
standard  of  life  has  been  protected  from  degradation. 

We  had  first  the  high  rates  of  pay — by  far  the  highest  in  Europe — 
and  the  extraordinarily  liberal  rations  granted  to  the  soldier;  and 
then  the  separation  allowances  paid  to  his  wife  and  family,  or  other 
dependents,  on  a  scale  hitherto  unheard  of,  and  amounting  now  to 
nearly  a  hundred  millions  sterling  annually.  Next  we  had  a  series 
of  orders  as  to  pensions  for  disabled  men  and  the  widows  and  orphans 
of  those  who  die.  Then  came  an  equally  progressive  series  of  orders 
securing  proper  wages  for  the  millions  of  munition  workers,  not  only 
in  the  government's  own  establishments  but  also  in  the  ten  or  fifteen 
thousand  private  establishments  turned  to  war  service.  The  rates 
of  pay  thus  secured  are,  so  far  as  the  lower  grades  are  concerned,  still 
far  from  being  satisfactory  to  the  British  labor  movement;  but  their 
extortion  from  a  reluctant  government,  and  their  imposition  on  still 
more  reluctant  capitalists,  has  done  an  enormous  amount  to  raise  the 
standard  of  life,  especially  among  women  workers.  Meanwhile  the 
government,  on  the  successive  demands  of  the  trade  unions  concerned, 
has,  at  its  own  expense,  raised  the  wages  of  the  half  million  railway 
workers  by  ten  shillings  per  week,  amounting  to  about  £13,000,000  a 
year  for  this  industry  alone;  and  has  awarded  increases  to  millions 


LABOR  AND  THE  WAR  519 

of  workers  in  private  employment  by  orders  which  have  the  force  of 
law,  increases  which  are  complained  of  as  being  far  from  sufficient, 
but  which  are,  at  any  rate,  remarkable  for  war  time.  In  February, 
1917,  there  was  being  ordered  a  legal  minimum  wage  for  all  the  agri- 
cultural laborers  in  Great  Britain  of  twenty-five  shillings  per  week, 
which  is  certainly  50  per  cent  more  than  the  average  of  three  years  ago. 

Concurrently  with  these  increases  in  the  income  of  the  wage- 
earning  families,  we  have  had  the  Rent  Restriction  Act,  which  (to 
the  financial  loss  of  the  property  owners)  prevents  any  raising  of  the 
rents  of  working-class  dwellings  above  those  of  August,  1914;  the 
prohibition  of  lapsing  of  industrial  insurance  policies  of  two  years' 
standing,  notwithstanding  the  non-payment  of  premiums;  various 
measures  for  preventing,  as  far  as  practicable,  the  steadily  continuing 
advance  in  the  prices  of  commodities;  and  the  relaxation  of  the  rules 
that  would  have  forfeited  the  old-age  pensions  of  persons  obtaining 
increased  receipts  from  work  or  gifts.  Finally  we  have  had  an  actual 
increase  by  50  per  cent  of  the  old-age  pension  now  drawn  by  the  men 
and  women  over  seventy. 

Meanwhile,  though  the  taxes  have  been,  in  the  aggregate,  nearly 
trebled,  the  amount  levied  on  the  wage-earning  class  has  been  only 
moderately  increased,  while  an  addition  of  over  two  hundred  and  fifty 
millions  a  year  has  been  made  to  the  imposts  levied  on  the  employing 
and  propertied  classes,  so  that,  what  with  excess-profits  tax,  income 
tax,  supertax,  and  death  duties,  the  richest  industrial  magnates  often 
find  at  present  three-quarters  of  their  incomes  confiscated  to  the  service 
of  the  community. 

Nothing  like  these  things  has  ever  before  happened  in  the  United 
Kingdom,  either  during  peace  or  in  any  previous  war.  It  is  these 
measures,  forced  upon  a  reluctant  Exchequer,  owing  to  the  way  in 
which  the  British  labor  movement  has  educated  and  led  the  public 
opinion  of  the  country,  that  have  so  far  saved  the  nation — to  the 
amazement  and  delight  of  the  political  economists,  who  never  expected 
the  workmen  to  manifest  so  much  power  or  the  government  to 
exhibit  such  true  economic  statesmanship — from  the  overwhelming 
calamity  of  a  fall  in  the  standard  of  life. 

Even  more  remarkable  has  been  the  extent  to  which,  under  war 
pressure,  the  British  labor  movement  has  secured,  from  the  properties 
and  employing  classes  and  from  the  government  that  these  still 
mainly  control  formal  and  official  recognition  as  an  equal  partner 
in  the  state. 


520  ECONOMICS  OF  WAR 

With  the  pressure  for  more  munitions,  the  government  called  into 
being  a  whole  series  of  special  committees,  both  national  and  local, 
representing  the  trade  unions  concerned  with  the  several  munition 
industries — eventually  embracing  nearly  all  the  principal  manu- 
facturing and  transport  trades — and  obtained  their  advice  and 
assistance  with  regard  to  each  successive  increase  of  governmental 
authority.  Trade  union  representatives  were  similarly  placed  on  the 
military  service  tribunals,  which  gave  temporary  or  permanent 
exemption  from  the  obligatory  military  service.  When,  in  1916,  an 
organization  was  formed  through  the  Kingdom  for  awarding  pensions, 
increasing  the  separation  allowances,  and  providing  treatment  for  the 
disabled,  the  labor  organizations  obtained  a  recognition  which  went 
beyond  anything  hitherto  accorded.  In  all  previous  cases  in  which 
labor  representatives  had  been  placed  on  official  bodies  not  formed  by 
popular  election,  the  representatives  have  been  chosen  by  the  appoint- 
ing authority.  When  the  war  pensions  committees  were  formed,  the 
spokesmen  of  the  labor  movement  urged  that  the  local  trade  unions 
and  other  labor  bodies  in  each  district  should  be  formally  and  officially 
conceded,  for  all  time,  the  right  to  be  themselves  represented;  and 
that  the  bodies  so  recognized  should  be  empowered  to  choose  for 
themselves  which  of  their  members  should  sit  upon  the  war  pensions 
committees  dealing  with  the  distribution  of  over  a  hundred  millions 
a  year  of  public  funds.  To  the  stupefaction  of  the  governing  classes 
and  the  officials  in  town  and  country,  who  had  hitherto  often  been 
unaware  of  the  existence  of  such  bodies,  this  right  of  direct  repre- 
sentation of  the  local  trade  unions  and  other  labor  organizations  of 
working  men  and  women  was  formally  and  officially  conceded,  amid 
general  public  approval. 

What  is  more  widely  known  is  the  admission  of  the  labor  move- 
ment to  partnership  in  the  administration  of  the  state.  When  in 
1915  the  Liberal  Government  gave  way  to  a  Coalition  Government, 
the  Labor  Party,  as  a  whole,  was  formally  invited  to  consent  to  take 
part,  its  chairman  being  offered  a  seat  in  the  Cabinet  and  two  of  its 
prominent  members  being  made  Under-Secretaries  of  State.  Several 
other  leading  officials  of  the  trade  union  movement  were  given  the 
honorary  distinction  of  being  sworn  in  as  members  of  the  Privy 
Council.  Finally,  when  in  December,  1916,  Mr.  Lloyd  George  suc- 
ceeded Mr.  Asquith  as  Prime  Minister,  the  adhesion  of  the  Labor 
Party  (though  it  had  only  thirty-five  members  in  a  House  of  Com- 
mons of  six  hundred  and  seventy)  was  recognized  as  essential;  and 


LABOR  AND  THE  WAR  521 

Mr.  Lloyd  George  in  a  long  private  interview  on  the  day  of  crisis  per- 
sonally solicited  the  co-operation  of  the  party — offering  the  chairman 
a  seat  in  the  supreme  War  Cabinet  of  five  members,  making  another 
Labor  member  Minister  for  Labor,  and  a  third,  Minister  for  Pensions; 
and  appointing  three  more  to  subordinate  ministerial  positions. 

3.    LABOR  WORKING  CONDITIONS  AND  EFFICIENCY1 

We  may  profitably  consider  the  means  by  which  labor  is  to 
become  available  and  effective  during  the  progress  of  the  war,  and 
at  the  same  time  discuss  the  measures  by  which  labor  ultimately 
is  to  receive  its  democratic  reward  for  innumerable  sacrifices  both  at 
home  and  abroad.  Constructive  effort,  not  merely  after  the  war  but 
as  a  result  of  the  war  and  while  the  war  is  in  progress,  is  the  important 
consideration.  We  may  rest  assured  that  widespread  and  lasting 
improvement  in  labor's  condition  will  come  in  two  forms:  first,  by 
means  of  collective  bargaining  through  trade  union  action,  and, 
second,  by  the  more  comprehensive  method  of  legal  enactment, 
including  a  train  of  executive  and  administrative  orders. 

Others  will  deal  sufficiently  with  progress  toward  industrial 
democracy  through  trade  unionism.  No  one  familiar  with  the  tradi- 
tions and  the  leadership  of  the  American  Federation  of  Labor  will 
doubt  that  trade  unionism  will  be  pushed  forward  by  the  war.  Doubt- 
less there  will  come  more  democratic  shop  management,  the  extension 
of  collective  bargaining,  and  the  adjustment  by  discussion  of  many 
of  the  conditions  of  employment,  especially  for  the  organized  workers. 
Even  though  faced  with  peculiar  difficulties,  including  the  absorption 
of  an  army  of  invading  women  and  a  host  of  unskilled  diluting  mechan- 
ics, organized  labor  was  never  in  a  more  advantageous  position  to 
assert  its  wishes  and  to  have  its  policies  adopted. 

But  the  greatest  sufferers  in  this  war  and  afterward  will  be  the 
masses  of  unorganized  men  and  women  who  will  only  indirectly  profit 
from  the  better  bargains  of  trade  unionism.  For  this  vastly  larger 
and  comparatively  helpless  group,  the  concern  of  public-spirited 
citizens  interested  in  the  general  welfare  must  be  in  that  form  of 

1  By  John  B.  Andrews.  Adapted  from  "Labor  Laws  in  the  Crucible: 
Measures  Necessary  for  Effectiveness  during  and  after  the  War,"  a  paper  read 
before  the  National  Institute  of  Social  Sciences,  January  18,  1918. 

ED.  NOTE. — Mr.  Andrews  is  secretary  of  the  American  Association  for  Labor 
Legislation. 


522  ECONOMICS  OF  WAR 

protection  which  is  to  come,  not  directly  through  the  collective  bargain- 
ing of  the  labor  unions,  but  through  the  democratic  expression  of 
public  opinion  in  our  legislative  halls.  Political  democracy,  won  by 
our  forefathers  and  emphasized  in  later  extension  of  suffrage  to  work- 
ing men  and  more  recently  to  women,  is  the  present  hope  of  millions 
of  our  industrial  workers. 

Even  organized  labor's  "interposition"  may  soon  take  on  a 
political  form.  Organized  labor  of  our  Civil  War  period,  upon  finding 
trade  unionism  unable  to  prevent  a  reduction  of  wages  when  war- 
priced  prosperity  slumped  at  the  close  of  that  four-year  conflict, 
turned  to  politics  and  labor  legislation.  A  somewhat  similar  political 
activity  may  now  be  foreshadowed  by  the  recent  change,  from  after- 
election  November  to  the  spring,  of  the  annual  convention  date  of  the 
American  Federation  of  Labor. 

Fortunately,  the  war  has  placed  labor  legislation  upon  a  new 
footing  before  the  country.  Men  in  high  places  have  suddenly 
recognized  that  labor  laws  are  not  based  upon  mere  sentiment  but 
upon  sound  economics.  They  have  joined  the  swelling  chorus  in 
demanding  that  protective  standards  be  maintained  in  order  that 
output  be  not  decreased. 

What,  then,  in  the  field  of  labor  legislation,  is  especially  needed 
and  feasible  in  America  at  this  moment  ?  Fundamental,  of  course,  is 
regular  employment.  The  usual  maladjustments  of  workers  seeking 
individually  for  jobs  and  employers  searching  unsystematically  for 
men  must  now  be  avoided.  War  has  made  the  immediate  adoption 
of  a  unified  system  of  labor  placement — machinery  for  intelligent  and 
effective  distribution  of  labor — a  matter  of  national  self-preservation. 
The  labor  market  must  be  organized  through  a  complete  network  of 
public  employment  bureaus.1 

A  second  means  of  labor  construction  is  the  extension  of  workmen's 
compensation.  This  legislation,  at  first  greeted  with  suspicion,  has 
within  a  half-dozen  years  spread  over  most  of  the  industrial  states. 
Many  inadequate  laws  are  yet  to  be  improved,  but  acceptance  of  the 
workmen's  compensation  principle  is  now  almost  universal.  The 
recognition  of  its  value  may  be  illustrated  by  our  experience  last  year 
with  longshoremen.  The  United  States  Supreme  Court,  in  a  divided 
opinion,  held  that  men  loading  and  unloading  vessels  could  not  when 
injured  seek  compensation  under  the  state  laws.  But  such  relief  had 
come  to  be  generally  regarded  as  social  justice.  Longshore  work  is 

1  ED.  NOTE. — This  need  has  now  been  met.     See  preceding  selection. 


LABOR  AND  THE  WAR  523 

particularly  hazardous.  Thousands  of  such  men  are  seriously  injured 
each  year.  These  "marine"  workmen,  through  the  necessary  ship- 
ment of  supplies  to  our  Allies  and  to  our  own  men  in  France,  had 
become  in  a  very  clear  sense  indispensable  in  this  war.  Thousands 
of  them  were  already  protesting  against  grievances  of  long  du- 
ration. Here  was  a  new  grievance,  the  loss  of  compensation  when 
injured.  A  bill  to  grant  such  relief  was  drafted  by  the  Associa- 
tion for  Labor  Legislation,  and  within  eleven  days  it  was  passed 
through  both  houses  of  Congress  and  signed  by  the  President.  This 
legal  protection  was  necessary  in  order  to  render  justice  in  time  of 
peace.  The  progress  of  the  war  lifted  it  into  commanding  importance. 

A  third  measure  of  labor  construction  which  the  war  has  made 
vitally  imperative  is  the  early  development  of  workmen's  health 
insurance.  Hundreds  of  thousands  of  war  workers  are  about  to 
enter  strange  employments.  Whether  in  the  manufacture  of  muni- 
tions or  elsewhere,  they  will  be  subjected  to  dangers  with  which  they 
are  not  familiar.  A  large  number  of  these  new  workers  will  be  women, 
peculiarly  susceptible  to  occupational  poisons,  and  with  maternity 
functions  to  be  carefully  considered  with  a  view  to  safeguarding  their 
present  health  as  well  as  that  of  the  coming  generations. 

The  official  commission  which  has  been  studying  this  question  in 
New  Jersey  states :  "  The  stress  of  industry  in  war  is  making  increasing 
demands  upon  physical  endurance.  In  our  hour  of  necessity  we  have 
been  shocked  by  the  high  percentage  of  draft  rejections  on  account  of 
physical  disability.  As  never  before  we  need  now  to  conserve,  for 
present  and  future  generations,  the  health  and  physical  vigor  of  our 
people.  Furthermore,  it  is  the  duty  of  statesmanship  to  look  beyond 
our  immediate  pressing  needs  to  the  period  of  reconstruction  at  the 
close  of  the  war.  We  cannot  afford  to  disregard  the  protective  legis- 
lative inducements  already  offered  to  workmen  by  our  keenest 
commercial  competitors  in  Europe." 

The  economic  advantage  to  a  nation  of  a  healthy,  efficient,  and 
contented  working  class  is  recognized  by  employers  who  have  observed 
the  effects  of  universal  insurance  against  sickness  in  Germany.  A 
former  representative  of  large  manufacturing  interests  who  is  now 
serving  in  the  War  Department  says:  "I  believe  very  strongly  that 
unless  we  make  very  substantial  progress  along  the  line  of  health 
insurance  we  shall  find  ourselves  under  very  serious  handicaps  in 
world-competition  at  the  conclusion  of  the  present  war.  I  believe 
that  many  of  our  people  are  still  going  cheerfully  on  with  the  social 


524  ECONOMICS  OF  WAR 

ideals  and  ideas  of  the  past  generation  quite  oblivious  to  the  fact  that 
our  great  commercial  competitors,  Germany  and  Great  Britain,  have 
advanced  far  beyond  us  in  social  thinking.  The  time  will  come  within 
the  years  immediately  following  the  war  when  our  'go  as  you  please' 
methods  of  industry  will  be  weighed  in  the  balance  in  competition  with 
Europe." 

Shortly  after  we  entered  this  war  the  United  States  .government 
provided  a  most  liberal  system  of  accident,  health,  and  life  insurance 
for  its  enlisted  men.  In  support  of  this  wise  action  it  was  frequently 
said  by  officials  in  Washington  that  men  were  better  fighters  if  relieved 
of  anxiety  regarding  their  future.  "The  individual  states,"  declares 
the  New  Jersey  commission,  "should  be  no  less  considerate  of  their 
army  of  industrial  workers." 

We  are  fighting  a  great  world-war  in  order  that  the  condition  of 
the  people  may  be  improved.  Some  time  this  war  will  end.  But 
within  each  nation  there  is  a  never-ending  struggle  for  better  living 
conditions,  for  opportunities  for  health  and  happiness  that  during 
generations  have  been  denied  to  the  workers.  Today,  for  example,  we 
possess  a  mighty  power  to  fight  disease.  To  the  wealthy  class  this 
scientific  knowledge  is  available;  to  the  poverty-stricken  it  is  doled  out 
in  charity  dispensaries.  But  for  the  masses  of  the  working  population 
— in  the  United  States  alone  among  great  industrial  nations — such 
treatment  is  not  made  available.  Through  a  properly  organized 
system  of  universal  health  insurance  it  would  be  possible  to  bring  the 
world  of  medical  science  to  the  aid  of  the  humblest  wage  earner. 

For  these  three  important  measures — public  employment  service, 
extension  of  accident  compensation,  and  the  adoption  of  workmen's 
health  insurance — there  has  already  been  ample  preparation  and 
agreement  in  time  of  peace.  While  earnestly  sifting  new  proposals 
for  the  after-war  reconstruction  period,  no  time  should  be  lost  in 
putting  these  three  well-tested  measures  into  operation. 

4.     EXTENT  OF  THE  EMPLOYMENT  OF  WOMEN  AND 

CHILDREN  IN  EUROPE1 

|hi 
The  first  effect  in  every  country  of  the  European  war  was  a  period 

of  widespread  unemployment  accompanied  by  tremendous  pressure 
in  the  few  industries  which  were  immediately  necessary  for  war 

1  By  Anna  Rochester.  Adapted  from  "Child  Labor  in  Warring  Countries," 
pp.  7-17,  which  is  Publication  No.  27  of  the  Children's  Bureau  of  the  United 
States  Department  of  Labor. 


LABOR  AND  THE  WAR  525 

supplies.  The  activities  of  labor  exchanges  were  extended  to  facilitate 
the  distribution  of  labor,  and  in  many  places  labor  restrictions  were 
relaxed,  since  this  was  thought  necessary  to  intensify  production. 
Experience  proved,  however,  that  the  relaxing  of  standards  failed 
of  its  purpose.  In  England  and  France,  and  more  recently  in  Italy, 
after  the  redistribution  of  labor  had  been  effected  and  an  actual  short- 
age of  workers  had  replaced  the  earlier  unemployment,  definite  steps 
were  taken  by  the  governments  to  restore  the  provisions  of  the  labor 
law,  because  they  were  found  to  be  essential  not  only  to  the  con- 
servation of  the  available  workers  but  to  the  quantity  and  the 
quality  of  their  output. 

On  the  other  hand  some  countries  resisted  from  the  beginning  of 
the  war  any  such  breaking  down  of  the  labor  law  and  maintained,  or 
even  advanced,  their  labor  restrictions.  No  special  exemptions  are 
reported  from  Hungary;  and,  with  the  exception  of  a  slight  lengthen- 
ing of  legal  overtime  in  the  Australian  State  of  Victoria,  school- 
attendance  and  child-labor  laws  have  not  been  relaxed  in  any  part  of 
Canada,  Australia,  or  New  Zealand.  They  have  been  strengthened 
during  the  war  in  South  Australia  and  in  four  Canadian  provinces. 
In  England  and  France  also  official  proposals  have  been  made  to 
reorganize  and  extend  secondary  education  in  ways  which  would 
directly  affect  the  employment  of  children  and  raise  the  standard  of 
their  protection. 

In  other  countries,  where  standards  have  been  relaxed  and  no 
official  action  has  been  taken  toward  their  restoration,  protests  and 
agitation  by  labor  organizations,  physicians,  or  social  workers  are 
reported.  In  Germany  and  in  Austria-Hungary  hours  of  labor  have 
been  shortened  in  certain  specified  industries  for  the  sake  of  conserving 
materials.  Thus,  Germany  in  1915  forbade  night  work  in  bakeries; 
limited  the  work  in  spinning,  weaving,  and  hosiery  mills  to  ten  hours 
a  day  and  five  days  a  week;  prohibited  the  use  of  power  machinery 
for  cutting  textiles;  and  permitted  the  use  of  power  machinery  for 
sewing,  buttonholing,  etc.,  only  thirty  hours  a  week.  Hungary  has 
forbidden  night  work  in  bakeries.  Austria  has  withdrawn  the  power 
to  grant  exemptions  for  overtime  and  night  work  in  establishments 
using  cotton,  except  on  urgent  orders  for  the  army. 

In  general  the  relaxing  of  labor  standards  during  the  war  has 
fallen  into  three  classes. 

First  and  most  general  is  the  lengthening  of  hours  of  work, 
including  night  work  and  Sunday  work  and  more  or  less  unlimited 


526  ECONOMICS  OF  WAR 

overtime.  Some  such  exemptions  have  been  reported  from  England, 
France,  Italy,  Germany,  Austria  (but  not  Hungary),  Switzerland, 
Holland,  and  Russia. 

Second  is  a  lowering  of  the  age  requirement  for  children  entering 
industry.  In  this  Italy  has  made  the  most  general  provision,  per- 
mitting boys  of  twelve  whose  fathers  are  soldiers  to  go  to  work  without 
regard  to  the  educational  standard  formerly  required  of  all  boys 
under  fifteen  years  of  age.  France  in  1915  admitted  children  of 
eleven  years  and  six  months,  instead  of  twelve  years,  to  the  July 
examination  for  primary  certificate  which  would  exempt  from  school 
attendance.  In  England  local  authorities  in  certain  districts  have 
been  excusing  children  from  the  requirements  of  school-attendance  law 
for  agriculture  and  other  " suitable"  employments.  In  Germany 
special  exemptions  from  the  age  limit  for  child  labor  are  provided  for 
in  the  emergency  law  of  August  4,  1914,  but  how  generally  they  have 
been  granted  does  not  appear. 

In  the  third  place  women  and  young  persons  have  been  employed 
in  dangerous,  injurious,  or  heavy  work  formerly  prohibited  by  law. 
The  war  legislation  in  Germany  and  Russia,  for  example,  specifically 
provided  for  the  granting  of  permission  to  women  and  young  persons 
to  work  underground  in  coal  mines.  The  under  secretary  of  arms  and 
munitions  in  France  authorized  the  employment  of  girls  under 
eighteen  in  government  powder  plants,  from  which  they  had  formerly 
been  excluded.  In  addition  women  have  been  employed  in  some 
occupations  in  which  men  only  were  formerly  engaged  and  for  which 
little  or  no  protection  was  provided  by  law.  Again,  in  some  cases 
new  dangers  have  developed  for  which  former  laws  made  no  specific 
provision. 

Quite  as  important  as  the  temporary  granting  of  exemptions  is  the 
postponement  of  laws  which  had  been  passed  before  the  war  but  had 
not  yet  become  effective.  Conspicuous  examples  are  the  federal 
factory  act  in  Switzerland  which  had  been  passed  in  June,  1914,  and 
awaited  the  word  of  the  Federal  Council  to  supersede  the  former  law; 
the  conventions  of  Berne  regarding  night  work  of  young  persons  and 
hours  of  labor  for  women  and  the  use  of  white  phosphorus,  which  had 
not  taken  effect  in  Italy  when  the  war  began;  and  the  decree  limiting 
the  hours  of  labor  in  iron  and  steel  industries  in  Germany. 

The  disorganization  of  industry  and  the  exceptional  labor  condi- 
tions which  have  been  permitted  would  have  seriously  affected  the 
welfare  of  women  and  children  even  if  there  had  been  no  increase  in 


LABOR  AND  THE  WAR  527 

the  number  at  work,  since  even  before  the  war  they  were  employed 
extensively  in  the  European  countries.  But  in  addition  new  workers 
have  everywhere  been  drawn  into  industry  during  the  war. 

Few  figures  are  available  to  show  how  many  women  and  children 
have  been  drawn  into  gainful  employment  during  the  war  by  the 
extraordinary  demand  for  labor  which  is  reported  for  certain  occupa- 
tions in  every  country.  From  France,  Germany,  and  Italy  come 
reports  of  a  great  increase  in  home  work,  with  its  customary  evils  of 
long  hours  and  low  wages,  in  connection  with  army  contracts  for 
clothing  and  other  supplies;  and  home  work  almost  invariably  includes 
the  employment  of  children. 

In  all  European  countries  the  demand  for  children  and  women  in 
agricultural  work  has  been  very  great.  Furloughs  from  school  for  a 
limited  period  are  permitted  by  the  school-attendance  laws  in  France 
and  Holland.  In  Russia  the  movement  for  compulsory  school 
attendance  which  was  under  way  before  the  war  has  been  seriously 
hampered  and  the  attendance  of  children  who  have  been  enrolled 
is  reported  to  me  more  irregular  than  usual  because  of  work  they  have 
to  do  at  home  and  in  the  fields.  In  England  certain  exemptions  are 
permitted  by  law  and  others  have  been  granted  at  the  discretion  of  the 
authorities.  The  actual  number  of  children  engaged  in  agricultural 
work  cannot  be  estimated  for  any  country. 

An  interesting  sidelight  on  what  agricultural  employment  of 
children  may  mean  comes  from  Russia,  where  some  600  refugee  chil- 
dren from  thirteen  to  sixteen  years  of  age  were  organized  in  colonies 
by  an  agency  of  the  city  council  of  Moscow  for  the  double  purpose  of 
helping  the  peasants  in  their  summer  work  in  the  fields  and  of  saving 
the  children  from  the  harmful  influences  of  the  capital.  On  the  basis 
of  a  medical  examination  the  children  were  divided  into  two  groups — 
those  able  to  give  help  on  farms  to  a  great  extent  and  those  who 
needed  rest  and  recuperation.  The  latter,  making  up  eight  out  of 
the  nineteen  colonies,  also  worked;  but  it  was  arranged  that  they 
could  only  help  in  the  household  and  do  "light"  field  work  such  as 
turning  hay  and  digging  potatoes;  they  were  not  to  work  more  than 
seven  hours  a  day. 

From  the  British  board  of  education  we  learn  that  while  ordinarily 
in  Great  Britain  some  450,000  children  pass  out  of  the  elementary 
schools  annually  at  or  about  the  age  of  fourteen  the  number  was 
increased  by  approximately  10  per  cent  during  the  year  of  1915. 
These  additional  45,000  children  were  practically  all  legally  entitled 


528  ECONOMICS  OF  WAR 

to  leave  school.  Further,  since  September,  1914,  a  very  large  number 
of  children  who  were  still  of  compulsory  school-attendance  ages  have 
been  excused  by  the  local  education  authorities  for  full-time  agri- 
cultural employment  or  (in  a  few  cases)  for  suitable  light  employment 
in  cities.  Broadly  speaking,  it  is  probable  that  together  these  figures 
do  not  fully  represent  the  total  loss. 

From  various  British  sources  come  reports  of  high  wages  for  boys 
in  unskilled  occupations  and  special  complaint  of  the  large  increase  of 
young  boys  in  street  trades.  It  is  stated  that  the  scarcity  of  boy  labor 
has  caused  girls  to  enter  occupations  in  which  they  have  not  formerly 
been  employed,  but  the  occupations  are  not  specified.  There  is  also 
the  shifting  of  juvenile  labor  from  one  district  to  another  in  a  way 
apparently  unknown  before  the  war. 

An  exodus  of  German  children  from  the  usual  blind-alley  occupa- 
tions is  indicated  by  the  difficulty  of  getting  boys  for  odd  jobs — 
messengers,  errand  boys,  and  other  unskilled  "nomad"  workers. 
"All  young  boys  with  any  ambition  now  become  apprentices  in  skilled 
trades  because  they  are  much  needed  and  are  paid  very  differently 
from  peace-time  rates;  or  else  they  become  lathe  workers  in  munition 
factories,  or  enter  the  postal  service.  Formerly  the  parents  had  to 
make  sacrifices  and  pay  for  the  instruction  of  the  boy,  but  now  he 
makes  while  an  apprentice  as  much  as  the  unskilled  youthful  workers 
used  to  make. 

Even  more  incomplete  are  the  figures  available  for  France,  Italy, 
and  Russia.  We  learn  from  the  Bulletin  du  Ministere  du  Travail, 
for  example,  that  in  April,  nearly  50,000  industrial  establishments, 
not  including  state-owned  munition  works  or  railways,  tramways, 
mines,  and  quarries,  had  replaced  by  other  workers  more  than  one- 
fifth  of  the  wage-earners  who  had  been  mobilized.  These  establish- 
ments had  employed  before  the  war  one  and  three-quarter  million 
workers  of  both  sexes  and  all  ages  and  of  these  approximately  420,000 
men  (24  per  cent)  had  been  called  to  the  colors.  In  April,  1916,  the 
places  of  some  87,000  had  been  filled,  but  how  these  new  workers  were 
distributed  among  men  above  military  age,  and  women,  boys,  and 
girls  does  not  appear.  A  marked  increase  of  women  workers  on 
French  railways  is  reported.  For  example,  it  is  stated  by  the  Journal 
des  Debats  that  the  percentage  of  women  railway  employees  in 
France  in  November,  1916,  was  growing  daily  and  had  already  risen 
to  proportions  varying  from  one  in  ten  to  one  in  six  on  different  lines. 

From  France  come  reports  also  of  women's  work  in  furnace 
industries.  As  early  as  August,  1915,  the  bulletin  of  the  minister  of 


LABOR  AND  THE  WAR  529 

labor  stated  that  "  Certain  of  the  new  occupations  in  which  women  are 
employed  seem  injurious  to  their  health  and  under  normal  circum- 
stances the  question  would  arise  whether  the  employment  of  women 
in  these  occupations  should  not  be  regulated." 

In  July,  1916,  the  French  government  ordered  that  all  soldiers 
detailed  to  munition  work  must  so  far  as  possible  be  replaced  by 
women,  and  even  earlier  it  had  been  ordered  that  women  should  be 
employed  instead  of  men  in  office  work  and  house  service  at  army 
headquarters.  In  September,  1916,  the  minister  of  munitions  stated 
that  300,000  women  had  gone  into  the  munition  works,  but  he  does 
not  say  how  many  of  them  were  under  twenty-one  years  of  age. 

Similar  orders  were  issued  in  Italy  in  circulars  of  August  23  and 
September  28,  1916,  which  stated  that  by  October  31,  50  per  cent  of 
the  men  of  military  age  in  the  munition  works  must  be  replaced  by 
women  and  boys,  and  that  by  December  31  the  percentage  must  be 
brought  up  to  80.  The  second  circular  states  that  of  the  355,349 
wage  earners  employed  at  that  time  in  822  munition  works  only 
45,628,  or  13  per  cent,  were  women.  By  December  31,  1916,  accord- 
ing to  the  report  of  the  national  committee  for  munitions  published 
early  in  the  current  year,  the  number  of  women  employed  in  war 
industries  had  risen  to  90,000,  as  against  430,000  men,  or  to  18  per 
cent  of  the  total  number  of  employees  as  compared  with  4  per  cent 
in  November,  1915.  In  some  plants  the  percentage  of  women  has 
risen  to  90  and  even  95.  While  emphasizing  the  remarkable  rapidity 
of  this  increase,  the  report  points  out  the  necessity  of  a  much  more 
general  displacement  of  men  by  women,  discusses  the  growth  of 
technical  training  schools  for  women  munition  workers,  and  expresses 
the  expectation  of  a  continually  increasing  response  of  Italian  women 
to  the  needs  of  the  war  industries.  How  far  this  expectation  has  been 
realized,  material  available  in  this  country  does  not  yet  show. 

As  in  France,  so  in  Italy  the  employment  of  women  in  auxiliary 
army  services  has  been  encouraged.  Clerical  work,  kitchen  work, 
laundry  work,  general  cleaning  and  other  work  in  military  hospitals, 
and  clerical  work  in  territorial  offices  are  especially  referred  to. 

The  only  Italian  figures  received  concerning  the  employment  of 
boys  during  the  war  refer  to  munition  works  in  Lombardy.  They  are 
based  on  reports  from  660  factories  employing  about  100,000  workers 
in  June,  1914,  and  145,000  workers  in  June,  1916.  The  number  and 
percentage  of  boys  employed  was  small  and  showed  little  change; 
1,297  boys  under  21,  or  i  .28  per  cent,  were  employed  in  1914,  and 
2,076  boys  under  21,  or  i  .42  per  cent,  in  1916.  On  the  other  hand, 


530  ECONOMICS  OF  WAR 

the  number  of  women  and  girls  in  these  plants  had  more  than  tripled 
and  the  percentage  of  women  and  girls  among  all  workers  had  risen 
from  4.77  per  cent,  in  1914,  to  9.97  per  cent  in  June,  1916.  This 
indication  of  the  slight  employment  of  boys  in  comparison  with  that  of 
women  and  girls  is  borne  out  by  the  report  of  the  national  committee 
for  munitions. 

General  references  are  found  in  Russian  publications  to  the  sub- 
stitution of  children  for  older  workers  but  no  data  are  available  as  to 
the  industrial  occupations  in  which  they  are  most  largely  employed. 
Street  trading  by  young  children  has  increased  and  some  as  young 
as  five  years  of  age  are  said  to  be  engaged  in  this  work. 

In  spite  of  her  neutrality  the  Netherlands  has,  of  course,  been 
deeply  affected  by  the  war.  As  industrial  life  has  gradually  adjusted 
itself  to  these  war  conditions  and  to  the  mobilization  of  the  army, 
there  has  been  on  the  one  hand  continued  unemployment  and  on  the 
other  a  slight  increase  in  child  and  woman  labor.  This  increase  has 
been  especially  marked  in  certain  industries.  The  proportion  of 
women  and  girls  among  all  wage  earners  in  industrial  establishments 
employing  more  than  25  persons  rose  from  20  per  cent  in  May,  1914, 
to  22  per  cent  in  May,  1916.  The  number  of  young  children  twelve 
and  thirteen  years  of  age  who  were  at  work  had  decreased  in  1913 
and  again  in  1914.  The  number  rose  again  in  1915  but  did  not  reach 
the  total  reported  for  1912  or  1913.  A  census  of  all  industries  shows 
from  1914  to  1916  an  increase  of  3  per  cent  in  the  employment  of  boys 
under  seventeen  years  of  age,  of  16  per  cent  in  the  employment  of 
women  seventeen  years  of  age  and  over.  The  increase  in  the  em- 
ployment of  men  seventeen  years  of  age  and  over  in  the  same  period 
was  only  2  per  cent.  In  the  clothing  trades  and  the  metal  indus- 
try, including  shipbuilding,  these  percentages  of  increase  are  much 
higher. 

5.    MEDIATION  IN  WAR  TIME1 

i.  The  commission  had  wide  opportunities,  both  as  to  the  extent 
of  territory  and  the  variety  of  industries  investigated,  to  inquire  into 
industrial  conditions  in  war  time.  The  commission  visited  Arizona, 

1  By  Felix  Frankfurter. 

ED.  NOTE. — The  report  of  the  President's  Mediation  Commission  to  the 
President  of  the  United  States,  January  9,  1918.  The  report  is  signed  by  W.  B. 
Wilson,  Chairman;  Ernest  P.  Marsh;  Verner  S.  Reed;  Jackson  L.  Spangler; 
John  H.  Walker;  Felix  Frankfurter,  Secretary  and  Counsel;  and  Max  Loewenthal, 
Assistant  Secretary.  This  is  a  summary  of  the  Commission's  conclusions. 


LABOR  AND  THE  WAR  531 

the  Pacific  Coast,  Minneapolis  and  St.  Paul,  and  Chicago;  studied 
the  situation  in  the  copper  mines,  the  telephone  industry,  the  North- 
west lumber  industry,  the  meat-packing  industry  as  centered  in 
Chicago,  the  rapid-transit  situation  and  the  related  industrial  con- 
dition in  the  Twin  Cities,  and  observed  as  well  other  industries  in  the 
states  adjacent  to  those  it  visited.  All  relevant  sources  of  information 
were  tapped,  for  close  contact  was  had  with  workmen  on  strike  and  at 
work;  employers  and  professional  men  and  federal  and  state  officials, 
who  are  brought  particularly  in  touch  with  labor  matters;  and  in 
addition,  the  voluminous  official  files  of  federal  and  state  authorities 
furnished  much  knowledge.  While  undoubtedly  each  industry 
presents  its  own  peculiarities,  certain  underlying  general  factors 
applicable  to  all  industry  emerge  from  the  three  months'  work  of  the 
commission. 

2.  Throughout  its  inquiry  and  in  all  its  work  the  commission  kept 
steadily  in  mind  the  war  needs  of  the  country.    The  conclusion 
cannot  be  escaped  that  the  available  man  power  of  the  nation,  serving 
as  the  industrial  arm  of  war,  is  not  employed  to  its  full  capacity  or 
wisely  directed  to  the  energies  of  the  war. 

3.  The  effective  conduct  of  the  war  suffers  needlessly  because 
of    (a)  interruption  of   work   due  to  actual  or  threatened  strikes; 

(b)  purposed  decrease  in  efficiency  through  the  "strike  on  the  job"; 

(c)  decrease  in  efficiency  due  to  labor  unrest;  and  (d)  dislocation  of 
the  labor  supply. 

4.  These  are  not  new  conditions  in  American  industry,  nor.  are 
their  causes  new.    The  conditions  and  their  causes  have  long  been 
familiar  and  long  uncorrected.     War  has  only  served  to  intensify  the 
old  derangements  by  making  greater  demands  upon  industry  and  by 
affording  the  occasion  for  new  disturbing  factors. 

5.  Among  the  causes  of  unrest,  familiar  to  students  of  industry, 
the  following  stand  out  with  special  significance  to  the  industrial 
needs  of  war: 

a)  Broadly  speaking,  American  industry  lacks  a  healthy  basis  of 
relationship  between  management  and  men.  At  bottom  this  is  due 
to  the  insistence  by  employers  upon  individual  dealings  with  their 
men.  Direct  dealings  with  employees'  organizations  is  still  the 
minority  rule  in  the  United  States.  In  the  majority  of  instances  there 
is  no  joint  dealing,  and  in  too  many  instances  employers  are  in  active 
opposition  to  labor  organizations.  This  failure  to  equalize  the  parties 
in  adjustments  of  inevitable  industrial  contests  is  the  central  cause  of 


532  ECONOMICS  OF  WAR 

our  difficulties.  There  is  a  commendable  spirit  throughout  the 
country  to  correct  specific  evils.  The  leaders  in  industry  must  go 
farther,  they  must  help  to  correct  the  state  of  mind  on  the  part  of 
labor;  they  must  aim  for  the  release  of  normal  feelings  by  enabling 
labor  to  take  its  place  as  a  co-operator  in  the  industrial  enterprise. 
In  a  word,  a  conscious  attempt  must  be  made  to  generate  a  new  spirit 
in  industry. 

b)  Too  many  labor  disturbances  are  due  to  the  absence  of  dis- 
interested processes  to  which  resort  may  be  had  for  peaceful  settle- 
ment.    Force  becomes  too  ready  an  outlet.     We  need  continuous 
administrative  machinery  by  which  grievances  inevitable  in  industry 
may  be  easily  and  quickly  disposed  of  and  not  allowed  to  reach  the 
pressure  of  explosion. 

c)  There  is  a  widespread  lack  of  knowledge  on  the  part  of  capital 
as  to  labor's  feelings  and  needs  and  on  the  part  of  labor  as  to  problems 
of  management.     This  is  due  primarily  to  a  lack  of  collective  negotia- 
tion as  the  normal  process  of  industry.     In  addition  there  is  but  little 
realization  on  the  part  of  industry  that  the  so-called  " labor  problem" 
demands  not  only  occasional  attention  but  continuous  and  systematic 
responsibility,  as  much  so  as  the  technical  or  financial  aspects  of 
industry. 

d)  Certain  specific  grievances,  when  long  uncorrected,  not  only 
mean  definite  hardships;    they  serve  as  symbols  of  the  attitude  of 
employers  and  thus  affect  the  underlying  spirit.     Hours  and  wages 
are,  of  course,  mostly  in  issue.     On  the  whole,  wage  increases  are 
asked  for  mostly  in  order  to  meet  the  increased  cost  of  living,  and  such 
demands  should  be  met  in  the  light  of  their  economic  causes.    Again, 
the  demand  for  the  eight-hour  day  is  nation  wide,  for  the  workers 
regard  it  as  expressive  of  an  accepted  national  policy. 

6.  Repressive  dealing  with  manifestations  of  labor  unrest  is  the 
source  of  much  bitterness,  turns  radical  labor  leaders  into  martyrs  and 
thus  increases  their  following,  and,  worst  of  all,  in  the  minds  of  work 
ers  tends  to  implicate  the  government  as  a  partisan  in  an  economic 
conflict.  The  problem  is  a  delicate  and  difficult  one.  There  is  no 
doubt,  however,  that  the  Bisbee  and  Jerome  deportations,  the  Everett 
incident,  the  Little  hanging,  and  similar  acts  of  violence  against 
workers  have  had  a  very  harmful  effect  upon  labor  both  in  the  United 
States  and  in  some  of  the  allied  countries.  Such  incidents  are 
attempts  to  deal  with  symptoms  rather  than  causes.  The  I.W.W. 
has  exercised  its  strongest  hold  in  those  industries  and  communities 


LABOR  AND  THE  WAR  533 

where  employers  have  most  resisted  the  trade-union  movement  and 
where  some  form  of  protest  against  unjust  treatment  was  inevitable. 

7.  The  derangement  of  our  labor  supply  is  one  of  the  great  evils 
in  industry.     The  shockingly  large  amount  of  labor  turnover  and  the 
phenomenon  of  migratory  labor  means  an  enormous  economic  waste 
and  involves  an  even  greater  social  cost.     These  are  evils  which  flow 
from  grievances  such  as  those  we  have  set  forth ;  they  are  accentuated 
by  uncontrolled  instability  of  employment.     Finally,  we  have  failed 
in  the  full  use  and  wise  direction  of  our  labor  supply,  falsely  called 
"labor  shortage,"  because  we  have  failed  to  establish  a  vigorous  and 
competent  system  of  labor  distribution.     However,  means  and  added 
resources  have  recently  provided  for  a  better  grappling  with  this 
problem. 

8.  It  is  then  to  uncorrected  specific  evils  and  the  absence  of  a 
healthy  spirit  between  capital  and  labor,  due  partly  to  these  evils 
and  partly  to  an  unsound  industrial  structure,  that  we  must  attrib- 
ute  industrial    difficulties  which  we   have  experienced  during  the 
war.     Sinister  influences  and  extremist  doctrine  may  have  availed 
themselves  of   these  conditions;  they   certainly   have   not   created 
them. 

9.  In  fact,  the  overwhelming  mass  of  the  laboring  population  is 
in  no  sense  disloyal.     Before  the  war  labor  was,  of  course,  filled  with 
pacific  hopes  shared  by  nearly  the  entire  country.     But,  like  other 
portions  of  the  citizenship,  labor  has  adjusted  itself  to  the  new  facts 
revealed  by  the  European  war.     Its  suffering  and  its  faith  are  the 
suffering  and  the  faith  of  the  nation.     With  the  exception  of  the 
sacrifices  of  the  men  in  the  armed  service,  the  greatest  sacrifices  have 
come  from  those  at  the  lower  rung  of  the  industrial  ladder.     Wage 
increases  respond  last  to  the  needs  of  this  class  of  labor,  and  their 
meager  returns  are  hardly  adequate,  in  view  of  the  increased  cost  of 
living,  to  maintain  even  their  meager  standard  of  life.     It  is  upon 
them  the  war  pressure  has  borne  most  severely.    Labor  at  heart  is 
as  devoted  to  the  purposes  of  the  government  in  the  prosecution  of 
this  war  as  any  other  part  of  society.     If  labor's  enthusiasm  is  less 
vocal,  and  its  feelings  here  and  there  tepid,  we  will  find  the  explanation 
in  some  of  the  conditions  of  the  industrial  environment  in  which  labor 
is  placed  and  which  in  many  instances  is  its  nearest  contact  with  the 
activities  of  the  war. 

a)  Too  often  there  is  a  glaring  inconsistency  between  our  demo- 
cratic purposes  in  this  war  abroad  and  the  autocratic  conduct  of  some 


534  ECONOMICS  OF  WAR 

of  those  guiding  industry  at  home.     This  inconsistency  is  emphasized 
by  such  episodes  as  the  Bisbee  deportations. 

b]  Personal  bitterness  and  more  intense  industrial  strife  inevita- 
bly result  when  the  claim  of  loyalty  is  falsely  resorted  to  by  employers 
and  their  sympathizers  as  a  means  of  defeating  sincere  claims  for 
social  justice,  even  though  such  claims  be  asserted  in  time  of  war. 

c)  So  long  as  profiteering  is  not  comprehensively  prevented  to  the 
full  extent  that  governmental  action  can  prevent  it,  just  so  long  will 
a  sense  of  inequality  disturb  the  fullest  devotion  of  labor's,  contribution 
to  the  war. 

The  causes  of  unrest  suggest  their  own  means  of  correction. 

1.  The  elimination  to  the  utmost  practical  extent  of  all  profiteer- 
ing during  the  period  of  the  war  is  a  prerequisite  to  the  best  morale  in 
industry. 

2.  Modern   large-scale   industry   has   effectually   destroyed    the 
personal  relation  between  employer  and  employee — the  knowledge 
and  co-operation  that  come  from  personal  contact.     It  is  therefore  no 
longer  possible  to  conduct  industry  by  dealing  with  employees  as 
individuals.     Some  form  of  collective  relationship  between  manage- 
ment and  men  is  indispensable.     The  recognition  of  this  principle 
by  the  government  should  form  an  accepted  part  of  the  labor  policy 
of  the  nation. 

3.  Law,  in  business  as  elsewhere,  depends  for  its  vitality  upon 
steady  employment.     Instead  of  waiting  for  adjustment  after  griev- 
ances come  to  the  surface  there  is  needed  the  establishment  of  con- 
tinuous  administrative   machinery   for   the   orderly   disposition   of 
industrial  issues  and  the  avoidance  of  an  atmosphere  of  contention 
and  the  waste  of  disturbances. 

4.  The  eight-hour  day  is  an  established  policy  of  the  country; 
experience  has  proved  justification  of  the  principle  also  in  war  times. 
Provision  must  of  course  be  made  for  longer  hours  in  case  of  emer- 
gencies.   Labor  will  readily  meet  this  requirement  if  its  misuse  is 
guarded  against  by  appropriate  overtime  payments. 

5.  Unified  direction  of  the  labor  administration  of  the  United 
States  for  the  period  of  the  war  should  be  established.     At  present 
there  is  an  unrelated  number  of  separate  committees,  boards,  agencies, 
and  departments  having  fragmentary  and  conflicting  jurisdiction  over 
the  labor  problems  raised  by  the  war.     A  single-headed  administration 
is  needed,  with  full  power  to  determine  and  establish  the  necessary 
administrative  structure. 


LABOR  AND  THE  WAR  535 

6.  When  assured  of  sound  labor  conditions  and  effective  means 
for  the  just  redress  of  grievances  that  may  arise,  labor  in  its  turn 
should   surrender   all   practices   which   tend   to   restrict   maximum 
efficiency. 

7.  Uncorrected  evils  are  the  great  provocative  to  extremist  propa- 
ganda, and  their  correction  would  be  in  itself  the  best  counter- 
propaganda.     But   there   is   need   for   more   affirmative   education. 
There  has  been  too  little  publicity  of  an  educative  sort  in  regard  to 
labor's  relation  to  the  war.     The  purposes  of  the  government  and  the 
methods  by  which  it  is  pursuing  them  should  be  brought  home  to  the 
fuller  understanding  of  labor.     Labor  has  most  at  stake  in  this  war, 
and  it  will  .eagerly  devote  its  all  if  only  it  be  treated  with  confidence 
and  understanding,  subject  neither  to  indulgence  nor  neglect,  but 
dealt  with  as  a  part  of  the  citizenship  of  the  state. 

6.    A  WAR-TIME  LABOR  POLICY1 

The  commission  of  representatives  of  employers  and  workers, 
selected  in  accord  with  the  suggestion  of  your  letter  of  January  28, 
1918,  to  aid  in  the  formulation,  in  the  present  emergency,  of  a  national 
labor  program,  present  to  you,  as  a  result  of  their  conferences,  the 
following : 

a)  That  there  be  created,  for  the  period  of  the  war,  a  National 
War  Labor  Board  of  the  same  number  and  to  be  selected  in  the  same 
manner  and  by  the  same  agencies  as  the  commission  making  this 
recommendation. 

b)  That  the  functions  and  powers  of  the  National  Board  shall  be 
as  follows: 

1.  To  bring  about  a  settlement,  by  mediation  and  conciliation,  of 
every  controversy  arising  between  employers  and  workers  in  the  field 
of  production  necessary  for  the  effective  conduct  of  the  war. 

2.  To  do  the  same  thing  in  similar  controversies  in  other  fields 
of  national  activity,  delays  and  obstructions  in  which  may,  in  the 
opinion  of  the  National  Board,  affect  detrimentally  such  production. 

3.  To  provide  such  machinery  by  direct  appointment,  or  other- 
wise, for  selection  of  committees  or  boards  to  sit  in  various  parts  of 

1  A  report  made  to  the  Secretary  of  Labor,  March  29,  1918,  by  the  War  Labor 
Conference  Board. 

ED.  NOTE. — This  is  the  basis  of  our  national  labor  policy  and  is  comparable 
"so  far  as  American  conditions  make  it  comparable"  with  the  English  Treasury 
Agreement,  later  embodied  in  the  Munitions  Bill. 


536  ECONOMICS  OF  WAR 

the  country  where  controversies  arise,  to  secure  settlement  by  local 
mediation  and  conciliation. 

4.  To  summon  the  parties  to  the  controversy  for  hearing  and 
action  by  the  National  Board  in  case  of  failure  to  secure  settlement  by 
local  mediation  and  conciliation. 

c)  If  the  sincere  and  determined  effort  of  the  National  Board  shall 
fail  to  bring  about  a  voluntary  settlement,  and  the  members  of  the 
Board  shall  be  unable  unanimously  to  agree  upon  a  decision,  then  and 
in  that  case,  and  only  as  a  last  resort,  an  umpire  appointed  in  the 
manner  provided  in  the  next  paragraph  shall  hear  and  finally  decide 
the  controversy  under  simple  rules  of  procedure  prescribed  by  the 
National  Board. 

d)  The  members  of  the  National  Board  shall  choose  the  umpire 
by  unanimous  vote.     Failing  such  choice,  the  name  of  the  umpire 
shall  be  drawn  by  lot  from  a  list  of  ten  suitable  and  disinterested 
persons  to  be  nominated  for  the  purpose  by  the  President  of  the 
United  States. 

e)  The  National  Board  shall  hold  its  regular  meetings  in  the  city 
of  Washington,  with  power  to  meet  at  any  other  place  convenient 
for  the  Board  and  the  occasion. 

/)  The  National  Board  may  alter  its  methods  and  practice  in 
settlement  of  controversies  hereunder,  from  time  to  time  as  experience 
may  suggest. 

g)  The  National  Board  shall  refuse  to  take  cognizance  of  a  con- 
troversy between  employer  and  workers  in  any  field  of  industrial  or 
other  activity  where  there  is  by  agreement  or  Federal  Law  a  means 
of  settlement  which  has  not  been  invoked. 

h}  The  place  of  each  member  of  the  National  Board  unavoidably 
detained  from  attending  one  or  more  of  its  sessions  may  be  filled  by  a 
substitute  to  be  named  by  such  member  as  his  regular  substitute. 
The  substitute  shall  have  the  same  representative  character  as  his 
principal. 

i]  The  National  Board  shall  have  power  to  appoint  a  secretary  and 
to  create  such  other  clerical  organization  under  it  as  may  be  in  its 
judgment  necessary  for  the  discharge  of  its  duties. 

j)  The  National  Board  may  apply  to  the  Secretary  of  Labor  for 
authority  to  use  the  machinery  of  the  Department  in  its  work  of 
conciliation  and  mediation. 

k}  The  action  of  the  National  Board  may  be  invoked  in  respect  to 
controversies  within  its  jurisdiction  by  the  Secretary  of  Labor  or  by 


LABOR  AND  THE  WAR  537 

either  side  in  a  controversy  or  its  duly  authorized  representative.  The 
Board,  after  summary  consideration,  may  refuse  further  hearing  if  the 
case  is  not  of  such  character  or  importance  as  to  justify  it. 

/)  In  the  appointment  of  committees  of  its  own  members  to  act 
for  the  Board  in  general  or  local  matters,  and  in  the  creation  of  local 
committees,  the  employers  and  the  workers  shall  be  equally 
represented. 

m)  The  representatives  of  the  public  on  the  Board  shall  preside 
alternately  at  successive  sessions  of  the  Board  or  as  agreed  upon. 

n)  The  Board  in  its  mediating  and  conciliatory  action,  and  the 
umpire  in  his  consideration  of  a  controversy,  shall  be  governed  by  the 
following  principles. 

PRINCIPLES  AND  POLICIES  TO  GOVERN  RELATIONS  BETWEEN  WORKERS 

AND  EMPLOYERS   IN   WAR   INDUSTRIES   FOR   THE   DURATION 

OF   THE   WAR 

There  should  be  no  strikes  or  lockouts  during  the  war 

Right  to  organize. — i.  The  right  of  workers  to  organize  in  trade 
unions  and  to  bargain  collectively,  through  chosen  representatives,  is 
recognized  and  affirmed.  This  right  shall  not  be  denied,  abridged,  or 
interfered  with  by  the  employers  in  any  manner  whatsoever. 

2.  The  right  of  employers  to  organize  in  associations  or  groups 
and  to  bargain  collectively,  through  chosen  representatives,  is  recog- 
nized and  affirmed.     This  right  shall  not  be  denied,  abridged,  or 
interfered  with  by  the  workers  in  any  manner  whatsoever. 

3.  Employers  should  not  discharge  workers  for  membership  in 
trade  unions,  nor  for  legitimate  trade  union  activities. 

4.  The  workers,  in  the  exercise  of  their  right  to  organize,  shall  not 
use  coercive  measures  of  any  kind  to  induce  persons  to  join  their 
organizations,  nor  to  induce  employers  to  bargain  or  deal  therewith. 

Existing  conditions. — i.  In  establishments  where  the  union  shop 
exists  the  same  shall  continue  and  the  union  standards  as  to  wages, 
hours  of  labor,  and  other  conditions  of  employment  shall  be 
maintained. 

2.  In  establishments  where  union  and  non-union  men  and  women 
now  work  together,  and  the  employer  meets  only  with  employees  or 
representatives  engaged  in  said  establishments,  the  continuance  of 
such  condition  shall  not  be  deemed  a  grievance.  This  declaration, 
however,  is  not  intended  in  any  manner  to  deny  the  right,  or  discourage 
the  practice,  of  the  formation  of  labor  unions,  or  the  joining  of  the  same 


538  ECONOMICS  OF  WAR 

by  the  workers  in  said  establishments,  as  guaranteed  in  the  last 
paragraph,  nor  to  prevent  the  War  Labor  Board  from  urging,  or  any 
umpire  from  granting,  under  the  machinery  herein  provided,  improve- 
ment of  their  situation  in  the  matter  of  wages,  hours  of  labor,  or  other 
conditions,  as  shall  be  found  desirable  from  time  to  time. 

3.  Established  safeguards  and  regulations  for  the  protection  of 
the  health  and  safety  of  workers  shall  not  be  relaxed. 

Women  in  industry. — If  it  shall  become  necessary  to  employ 
women  on  work  ordinarily  performed  by  men,  they  must  be  allowed 
equal  pay  for  equal  work  and  must  not  be  allotted  tasks  dispropor- 
tionate to  their  strength. 

Hours  of  labor. — The  basic  eight-hour  day  is  recognized  as  applying 
in  all  cases  in  which  existing  law  requires  it.  In  all  other  cases  the 
question  of  hours  of  labor  shall  be  settled  with  due  regard  to  govern- 
mental necessities  and  the  welfare,  health,  and  proper  comfort  of  the 
workers. 

Maximum  production. — The  maximum  production  of  all  war 
industries  should  be  maintained  and  methods  of  work  and  operation 
on  the  part  of  employers  or  workers  which  operate  to  delay  or  limit 
production,  or  which  have  a  tendency  to  increase  artificially  the  cost 
thereof,  should  be  discouraged. 

Mobilization  of  labor. — For  the  purpose  of  mobilizing  the  labor 
supply  with  a  view  to  its  rapid  and  effective  distribution,  a  permanent 
list  of  the  number  of  skilled  and  other  workers  available  in  different 
parts  of  the  nation  shall  be  kept  on  file  by  the  Department  of  Labor, 
the  information  to  be  constantly  furnished,  (i)  by  trade  unions; 

(2)  by  state  employment  bureaus  and  federal  agencies  of  like  character; 

(3)  by  the  managers  and  operators  of  industrial  establishments 
throughout  the  country.     These  agencies  should  be  given  opportunity 
to  aid  in  the  distribution  of  labor,  as  necessity  demands. 

Custom  of  localities. — In  fixing  wages,  hours,  and  conditions  of 
labor  regard  should  always  be  had  to  the  labor  standards,  wage  scales, 
and  other  conditions  prevailing  in  the  localities  affected. 

The  living  wage. — i.  The  right  of  all  workers,  including  common 
laborers,  to  a  living  wage  is  hereby  declared. 

2.  In  fixing  wages,  minimum  rates  of  pay  shall  be  established 
which  will  insure  the  subsistence  of  the  worker  and  his  family  in  health 
and  reasonable  comfort. 


XIII 
THE  COSTS  OF  THE  WAR 

Introduction 

In  the  nature  of  things  it  is  as  yet  impossible  to  present  accurate, 
quantitative  data  on  the  costs  of  the  war.  Tentative  estimates  only 
may  be  made  of  the  losses  that  are  entailed  in  wealth  and  population. 
This  chapter,  therefore,  has  as  its  chief  purpose  an  analysis  of  the 
nature  of  war  costs  and  the  significance  of  these  costs  for  the  future 
of  society. 

As  the  readings  show,  there  is  great  danger  in  attempting  to 
measure  the  costs  of  the  war  in  terms  of  money.  The  monetary 
figures  of  war  costs  appear  literally  staggering,  and  to  one  who  thinks 
of  war  debts  as  sums  of  money  which  must  be  paid  by  certain  nations 
to  other  peoples  it  would  appear  that  the  debts  of  the  war  could  not  be 
paid  in  countless  generations.  As  Section  LXI  shows,  however, 
these  monetary  figures  of  war  debts  are  entirely  misleading.  If  we 
consider  the  world  as  a  whole,  it  is  apparent  that  the  combined  debts 
of  the  contending  belligerents  are  not  owing  to  the  people  of  other 
planets.  The  people  of  the  world  as  a  whole,  as  indicated  by  the 
Treasury  statistics  of  the  various  nations,  owe  the  people  of  this  world 
as  a  whole  certain  staggering  amounts  of  wealth,  expressed  in  monetary 
terms.  The  Treasury  statements  are  thus  only  bookkeeping  records; 
they  register  in  a  financial  way  how  much  of  the  goods  and  services 
of  the  various  nations  has  during  the  war  been  devoted  to  public 
rather  than  private  ends.  At  the  end  of  the  war  the  payment  of  these 
debts  does  not  involve  a  net  reduction  in  the  total  wealth  of  the  world ; 
it  means  merely  that  the  governments  of  the  various  nations  will 
collect,  through  taxation  of  the  people,  funds  which  will  in  turn  be 
paid  back  to  the  people — that  is,  to  the  owners  of  government  bonds 
and  other  obligations.  Now,  if  all  contributed  equally  to  the  financial 
support  of  the  war,  and  if  post-bellum  taxes  were  levied  in  exact  pro- 
portion to  the  bond  holdings  of  those  who  had  financed  the  war,  the 
payment  of  the  debts  would  be  merely  a  balancing  of  the  books  and 
would  be  without  economic  significance  except  in  so  far  as  it  required 

539 


540  ECONOMICS  OF  WAR 

a  large  force  of  people  to  collect  the  revenue,  make  the  disbursements, 
and  keep  the  necessary  financial  records. 

In  so  far,  however,  as  the  individuals  of  any  nation  contribute 
to  the  financing  of  war  in  differing  proportions,  these  war  debts  do 
involve  readjustments  in  property  and  income  among  the  various 
groups  of  people,  although  in  terms  of  totals  the  figures  would  indicate 
the  real  nature  of  war  costs  no  more  than  before.  It  should  be  added 
that  where  one  nation  borrows  from  another  as  a  means  of  financing  a 
war,  the  problem  is  also  different.  England,  for  instance,  will  have  to 
pay  its  debts  to  the  United  States.  This  will  make  the  English  people 
poorer,  and  the  people  of  the  United  States  more  affluent  to  a  like 
degree. 

The  real  costs  of  the  war  must  be  measured  in  other  than  monetary 
terms.  In  brief,  the  social  costs  (Section  LXII)  consist  in  a  lessened 
supply  of  capital  goods;  in  exhausted  resources  in  land  and  raw 
materials;  in  decimated  and  impoverished  populations — impover- 
ished in  the  sense  of  being  undernourished  and  in  subnormal  health 
conditions;  in  the  arrested  training  and  development  of  the  youth 
of  the  land;  and  in  the  suspended  cultural  progress  of  the  race. 

But  there  are  offsetting  gains.  Ultimate  considerations  (selection 
LXII,  4)  raise  the  question  whether,  all  factors  considered,  the  war 
will  not  have  paid  for  itself  in  spite  of  the  enormous  costs  which  it 
entails.  It  is  a  question  here  of  balancing  gains  and  losses;  and, 
since  so  many  of  the  factors  are  of  an  incommensurable  sort  the 
question  must  perforce  be  left  unanswered.  Chapter  xiv,  however, 
attempts  an  appraisal  of  the  war's  lessons  in  the  principles  of  national 
efficiency,  for  peace  as  well  as  for  war's  requirements. 

If  the  war  is  brought  to  the  kind  of  termination  which  would 
incorporate  the  principles  that  have  been  so  strongly  enunciated  by 
the  President,  the  gains  from  this  world-cataclysm  will  undoubtedly, 
in  the  end,  outweigh  its  awful  losses.  Everything  thus  depends  upon 
the  nature  of  the  peace  which  is  to  follow.  It  is  the  purpose  of  chapter 
xv  to  present  some  of  the  factors  which  are  incident  to  an  enduring 
peace. 


COSTS  OF  THE  WAR  541 

LX.     Quantitative  Measurement  of  War  Costs 
i.    WHAT  DO  WE  MEAN  BY  WAR  COSTS?1 

What  is  meant  by  the  costs  of  war  ?  It  is  obvious  that  a  distinc- 
tion must  be  made  between  the  money  costs  and  the  real  costs  of  a 
war.  The  money  costs  of  a  war  are  the  actual  outlays  of  the  govern- 
ment for  war  purposes;  that  is,  the  surplus  above  the  general  expendi- 
tures in  time  of  peace,  making  due  allowance  for  changes  in  the 
purchasing  power  of  money.  The  real  costs  of  a  war,  on  the  other 
hand  are  to,  be  calculated  very  differently.  When  the  ordinary  man 
speaks  of  wealth,  he  thinks  of  accumulated  capital.  The  more  saga- 
cious thinker,  however,  is  aware  that  the  real  wealth  of  a  community 
consists  in  larger  part  of  the  results  of  current  production.  Accu- 
mulated capital  is  of  importance  chiefly  as  an  aid  to  current  produc- 
tion. It  has  been  calculated  that  the  world  is  always  within  a  year 
and  a  half  of  starvation.  If  current  production  were  suddenly  to 
cease,  the  world's  stores  of  food  and  other  products  would  barely 
suffice  for  eighteen  months.  A  wealthy  country  is  one  where  the 
consumption  of  the  people  is  great  and  variegated  and  where  the 
current  production  is  so  large  that  there  will  still  be  a  substantial 
surplus  susceptible  of  being  converted  into  capital  for  future  produc- 
tion and  into  an  environment  which  will  spell  increasing  welfare  and 
civilization.  A  great  war  interferes  rudely  with  the  results  both  of 
past  accumulation  and  of  current  production.  The  real  costs  of  a 
war  are  to  be  measured  by  the  diminution  of  the  social  patrimony 
and  by  the  diversion  of  current  social  output  from  productive  to 
unproductive  channels,  i.e.,  by  changes  both  in  the  fund  of  accumu- 
lated wealth  and  in  the  flow  of  social  income. 

In  drawing  up  the  balance  sheet  we  should  have  to  put  on  the  one 
side  the  diminution  of  the  fund  of  wealth  as  represented  by  (a)  the 
destruction  of  private  property;  (b)  the  loss  of  government  accumu- 
lations; (c)  the  impairment  of  natural  resources;  and  (d)  the  decrease 
in  the  social  output  due  to  the  reduction  of  the  labor  force  by  military 
service  and  the  fortunes  of  war.  On  the  other  side  of  the  ledger, 
indeed,  we  should  have  to  put  such  capital  items  as  (a)  indemnities 
or  booty,  and  (b)  the  acquisition  of  new  territory;  and  on  the  income 
side,  the  results  of  (c)  speeding  up  of  production,  (d)  the  more 

1  By  Edwin  R.  A.  Seligman  (see  p.  409).  Adapted  from  "Loans  versus  Taxes 
in  War  Finance,"  Annals  of  the  American  Academy  of  Political  and  Social  Science, 
LXXV  (January,  1918),  53-54- 


542 


ECONOMICS  OF  WAR 


favorable  economic  situation  attained  by  the  political  results  of  the 
war,  and  (e)  changes  in  the  methods  of  industry  and  the  relation  of 
capital  and  labor  which  may  conduce  to  greater  efficiency  and  increased 
output. 

Although  not  all  of  these  items  are  susceptible  of  being  put  in 
terms  of  dollars  and  cents,  the  real  costs  of  a  war  may  be  characterized 
as  the  balance  of  the  debit  side  over  the  credit  side  in  the  above 
account. 

2.    PECUNIARY  COSTS  OF  THE  EUROPEAN  WAR1 

It  is  now  possible  to  bring  together  the  final  figures  for  all  the 
belligerent  countries  and  to  estimate  the  total  cost  of  the  war  for  the 
three  years  and  five  months  of  its  continuance — from  August  i,  1914, 
to  December  31,  1917. 

If  the  annual  national  income  of  the  more  important  countries  is 
compared  with  the  cost  of  the  war  for  the  last  calendar  year,  1917,  the 
real  burden  of  the  war  in  made  apparent.  It  will  be  noticed  that  in 
some  cases  the  war  is  already  costing  more  in  a  single  year  than  the 
estimated  incomes  of  the  whole  people,  and  in  all  the  others  except 
the  United  States  it  is  approaching  very  close  to  this  point.  Only  in 
the  case  of  this  country  do  there  remain  any  appreciable  resources 
which  may  yet  be  drawn  upon  to  defray  future  costs.  The  following 
table  gives  these  figures. 


Country 

Annual  National 
Income 

War  Expenditures 
for  1917 

United  States  
Great  Britain  
France  

$38  ,000,000,000 
10,700,000,000 
7,300,000,000 

$  9,000,000,000* 
ii,3oo,ooo,ooot 
6,720,000,000 

Russia  

6,500,000,000 

10,000,000,000 

Italy.  

4,000,000,000 

2,800,000,000 

Germany     .      ... 

10,500,000,000 

9,300,000,000 

Austria-Hungary.  . 

5,500,000,000 

5,000,000,000 

*  Estimated  for  twelve  months  on  the  basis  of  nine  months' 
actual  expenditures,  allowance  being  made  for  progressive  monthly 
increase. 

t  Exclusive  of  loans  to  Allies. 

1  By  Ernest  L.  Bogart.  From  a  monograph  with  the  above  title  in  Volume  5 
of  the  series  Preliminary  Economic  Studies  of  the  War,  pp.  41-43.  Copyright  by 
the  Carnegie  Endowment  for  International  Peace,  1918. 

ED.  NOTE. — Mr.  Bogart  is  Professor  of  Political  Economy  at  the  University 
of  Illinois. 


COSTS  OF  THE  WAR  543 

In  conclusion  it  should  be  noted  that  the  costs  thus  far  tabulated 
are  only  the  direct  money  outlays  of  the  countries  involved.  They 
do  not  take  into  account  the  indirect  costs,  such  as  the  destruction  of 
property,  the  depreciation  of  capital,  the  loss  of  production,  the  inter- 
ruption to  trade,  etc.  It  has  been  estimated  that  these  amount  to  as 
much  again  as  the  direct  costs.  This  would  raise  the  total  cost  to  all 
the  belligerents  to  $335,000,000,000.  And  in  this  staggering  total 
are  not  included  the  expenditures  or  losses  of  neutral  nations,  which 
have  been  very  real  and  in  some  cases  very  serious,  nor  the  loss  of 
human  life. 

On  the  other  hand,  certain  deductions  may  be  made  which  reduce 
somewhat  the  real  costs.  In  the  first  place,  not  all  of  the  war  expendi- 
ture is  pure  loss.  Some  expenditures  are  simply  transferred  from 
family  budgets  to  that  of  the  state.  Soldiers  are  fed,  clothed,  and 
housed  at  the  expense  of  the  government  and  the  bill  is  paid  out  of 
taxes  or  loans.  Other  expenditures  are  positively  productive,  such 
as  the  building  of  railways  or  merchant  vessels.  And  in  the  second 
place  it  is  quite  obvious  that  a  partial  explanation  of  the  growing 
costs  of  the  war  lies  in  the  depreciation  of  the  money  unit.  Measured 
in  dollars  the  expenditures  are  mounting  steadily  and  rapidly. 
Measured  in  terms  of  services  and  commodities  the  increase  is  much 
less  rapid.  It  has  been  estimated  by  the  editor  of  the  London  Statist 
that  "  the  net  cost  of  the  war  to  the  belligerents  is  about  one-half  of 
its  total  cost."  If  this  generalization  be  accepted  as  correct  and  one- 
half  of  the  direct  cost  be  subtracted  there  is  left  as  the  real  economic 
cost  of  the  war  thus  far  $176,700,000,000. 


544 


ECONOMICS  OF  WAR 


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1  These  figures,  published  July  28,  1917,  are  estimated  at  the  end  of  the  third 
year  of  the  war,  and  are  given  in  the  New  York  Times  Current  History,  September, 
1917. 


COSTS  OF  THE  WAR  545 

LXI.     War  Debts  and  War  Costs 
i.     GERMANY  ON  THE  VERGE  OF  BANKRUPTCY1 

The  total  note  issues  of  the  Reichsbank  itself  at  the  end  of  Febru- 
ary, 1918,  had  reached  $2,693,000,000,  largely  through  discount 
operations  in  Imperial  Treasury  bills.  The  Reichsbank  discounted 
about  one  billion  more  of  these  bills  in  1917  than  in  1916. 

Besides  the  circulation  of  the  Reichsbank  the  issues  of  the  Darle- 
henskassen  amounted  on  March  7  to  $1,900,000,000,  which  gives  a 
total  of  $4,593,000,000  paper  money  in  circulation.  By  comparing 
that  sum  with  the  $472,700,000  notes  that  the  Reichsbank  had  out- 
standing in  July,  1914,  6'ne  gets  "a  good  measure  of  the  road  that 
Germany  had  traveled  over  in  the  direction  of  irredeemable  paper." 
It  shows  that  for  every  dollar  of  paper  circulating  just  before  the  war 
the  circulation  now  carries  $9 . 73  in  paper. 

To  see  on  what  thin  ice  Germany  is  skating,  let  us  compare  this 
huge  volume  of  paper  money  with  the  gold  stock  of  the  Reichsbank. 
The  whole  volume  of  paper  money  must  be  taken,  inasmuch  as  the 
Reichsbank  is  responsible  for  the  operations  of  the  Darlehenskassen, 
which  are  carried  on  as  mere  annexes  to  it.  Against  the  total  of 
notes  above  mentioned  of  $4,593,000,000  the  Reichsbank  held  at  the 
end  of  February  only  $573,000,000  in  gold.  In  other  words,  if  the 
Reichsbank  were  called  upon  to  redeem  these  notes  in  gold  it  would 
pay  slightly  less  than  \2\  cents  on  the  dollar. 

And  the  ominous  thing  for  Germany  is  that  this  process  has  by  no 
means  run  its  course  as  yet.  It  has  gone  from  bad  to  worse,  with  the 
worst  still  to  come.  The  note  circulation  of  the  Reichsbank  alone 
increased  since  a  year  ago  by  $762,000,000,  while  that  of  the  Darle- 
henskassen has  been  expanded  by  more  than  $500,000,000  since  the 
end  of  last  October.  On  the  other  hand,  the  gold  stock  of  the  Reichs- 
bank is  moving  in  the  opposite  direction;  it  is  now  nearly  $30,000,000 
less  than  a  year  ago. 

It  would  not  be  possible  to  establish  any  trustworthy  standard 
by  which  to  measure  the  depreciation  of  German  paper  money.  The 
ratings  of  its  value  vary  greatly  in  the  small  neutral  countries  adjacent 
to  Germany;  and  no  uniform  valuation  can  be  arrived  at  by  comparing 
them. 

1  By  William  C.  Dreher.  From  the  New  York  Tribune  as  summarized  in 
Business  Digest,  May  22,  1918. 

ED.  NOTE. — Mr.  Dreher  was-  a  representative  of  the  Associated  Press  in 
Germany  and  did  not  leave  there  until  after  the  United  States  entered  the  war. 


546  ECONOMICS  OF  WAR 

The  interest  charges  alone  by  the  end  of  April  this  year  will  have 
reached  $1,450,000,000  a  year,  rather  more  than  less.  Dr.  Helfferich 
has  estimated  something  like  $1,900,000,000  to  $2,000,000,000  as  the 
amount  which  before  the  war  represented  the  annual  savings  of  the 
people,  or  what  they  had  left  over  for  investments  of  all  kinds.  Of 
that  sum  they  put  about  $720,000,000,  in  1912,  into  stock-exchange 
securities  of  all  classes,  which  was  "less  than  half  of  the  present  interest 
on  the  national  debt."  The  rest  went  into  other  securities,  building 
operations,  investments  abroad,  and  miscellaneous  channels.  These 
figures  give  a  result  that  is  ominous  for  the  German  people,  showing, 
as  it  does,  a  debt  cost  already  of  from  72  to  76  per  cent  of  their  savings 
in  a  year1  of  great  prosperity.  By  the  end  of  this  year,  however,  if 
the  war  still  goes  on  and  the  monthly  rate  of  war  expenditure  remains 
at  the  $893,000,000  recently  admitted  by  Count  Rodern,  "the  annual 
interest  charge  will  rise  to  90  or  95  per  cent  of  their  savings  in  1912." 

This  fact  is  already  looming  large  in  the  minds  of  German  financial 
authorities.  But  the  interest  charge  will  not  represent  the  only 
financial  burden  laid  upon  the  German  people  by  their  military  lords. 
There  will  be-a  huge  pension  appropriation  every  year  for  many  years 
to  come.  At  this  time  the  number  of  soldiers  killed  in  battle  or  lost 
through  wounds  or  disease  must  exceed  1,250,000,  and  may  even 
reach  1,500,000;  and  doubtless  an  equally  large  number  have  been 
either  wholly  or  partly  disabled.  The  widows  and  children  of  deceased 
officers  and  men  might  easily  exceed  3,000,000.  Thus  the  roll  of 
pensioners  must  draw  itself  out  to  a  stupendous  length.  And  nig- 
gardly as  is  the  scale  on  which  Germany  pays  pensions,  especially  to 
the  disabled  common  soldier  and  his  dependents,  the  total  outgo  in 
pensions  must  reach,  as  some  good  German  authorities  estimate,  as 
much  as  $700,000,000  a  year.  But  that  is  not  all.  Provision  will 
have  to  be  made  for  the  gradual  extinguishment  of  the  huge  national 
debt.  Financial  writers  generally  assume  that  the  amortizations 
must  reach  at  least  $600,000,000  a  year.  Now,  if  these  German 
assumptions  be  correct,  what  do  they  mean?  They  mean  that  the 
German  people  will  have  to  meet  annually  an  outgo  of  $2,750,000,000, 
or  some  $750,000,000  to  $850,000,000  more  than  their  aggregate 
savings  in  1912.  And  almost  the  whole  of  that  enormous  sum 
represents  the  heritage  left  them  by  this  war. 

George  Bernhard  has  recently  said  in  a  public  lecture  that  the 
total  taxation — national,  state,  and  municipal — will  reach  $3,100,- 
000,000.  But  this  estimate  is  too  low.  Count  Preysing  said  in  the 


COSTS  OF  THE  WAR  547 

Bavarian  Reichsrat  that  the  total  will  reach  $4,640,000,000,  or  four 
times  as  much  as  before  the  war.  Thus  there  is  high  official  authority 
for  saying  that  Imperial  expenditure  after  the  war  will  be  from 
$1,230,000,000  to  $1,330,000,000  greater  every  year  than  the  aggregate 
savings  of  the  people  before  the  war.  And  all  this  is  just  a  snapshot 
taken  of  this  growing  snowball  of  debt  as  it  rolls  past  us  at  this 
moment.  But  it  is  rolling  on,  its  volume  increases  daily,  there  is  no 
end  in  sight. 

2.     GERMANY'S  WAR  DEBTS  NOT  WHAT  THEY  SEEM1 

Germany's  approaching  financial  bankruptcy  has  been  widely 
discussed  in  financial  circles  of  late  and  many  incline  to  the  belief 
that  her  staggering  debt  will  force  a  military  collapse  in  the  near 
future.  The  figures  which  are  quoted  to  show  that  the  interest  on 
Germany's  debt  is  substantially  equal  to,  if  not  in  excess  of,  her  income, 
however,  are  almost  entirely  beside  the  point.  The  fundamental 
fallacy  involved  in  these  figures  is  that  only  one  side  of  the  financial 
accounting  is  considered. 

It  must  be  borne  in  mind  that  Germany  is  not  financing  this  war 
by  borrowing  from  outsiders.  It  is  practically  all  being  done  through 
domestic  loans  and  taxes.  When  it  is  pointed  out  therefore  that  the 
interest  charges  which  Germany  has  to  meet  each  year  are  $1,500,- 
000,000,  or  more,  one  must  reflect  that  this  interest  is  received  by  the 
German  people  as  well  as  paid  by  the  German  people.  Similarly, 
when  it  is  argued  that  an  enormous  tax  will  have  to  be  levied  after 
the  war  to  pay  pensions,  it  must  again  be  reflected  that  the  govern- 
ment in  its  financing  is  merely  transferring  funds  from  German  people 
to  German  people.  Under  these  circumstances,  national  debts  owed 
to  the  nation's  own  citizens  are  merely  paper  claims  of  the  individuals 
of  the  state  to  the  existing  supply  of  national  wealth  and  to  future 
national  wealth.  The  treasury  financial  statements  amount  merely 
to  bookkeeping,  showing  the  distribution  of  ownership  among 
German  citizens  of  present  and  future  national  income. 

War  finance  may  give  to  certain  classes  of  people  a  larger  pro- 
portion of  the  national  wealth  than  before;  it  may  give  to  others  less. 
But  by  itself,  domestic  borrowing  has  no  direct  effect  upon  the  nation's 
real  wealth.  The  costs  of  war  to  a  nation  are  not  to  be  measured  in 
terms  of  money.  They  must  be  measured  rather  by  the  deterioration 
of  plant  and  equipment,  by  the  exhaustion  of  natural  resources,  and 

1  An  editorial. 


548  ECONOMICS  OF  WAR 

by  the  loss  of  new  capital  which  would  have  been  created  had  net  war 
diverted  the  energies  of  the  people  from  construction  to  destruction. 
Thus  measured  Germany  will  be  seen  to  be  far  from  bankrupt,  for  she 
still  has  close  to  70,000,000  of  people,  including  prisoners  of  war; 
she  still  possesses  her  original  agricultural  area,  though  doubtless 
somewhat  impaired  as  to  fertility;  she  still  possesses  her  factories  and 
her  railroads,  though  they  are  somewhat  the  worse  for  wear  and  tear; 
and  she  still  possesses  her  basic  supplies  of  raw  materials  from  which 
are  wrought  the  instruments  of  warfare.  Indeed,  as  a  result  of  con- 
quests attained,  many  of  these  resources  have  been  increased  a 
hundred  fold,  and  the  question  of  their  utilization  is  only  one  of 
effective  organization,  which  in  time  can  be  given  them. 

It  cannot  be  too  strongly  emphasized  that  the  Teutonic  power  of 
resistance  does  not  depend  upon  finance.  The  German  organization 
through  central  administration  has  directed  a  certain  percentage  of  the 
energy  of  the  Teutonic  power  to  the  fighting  units  on  the  various 
fronts;  a  certain  percentage  to  the  production  of  munitions  and  other 
army  supplies;  a  certain  percentage  to  the  construction  of  sub- 
marines; and  a  certain  percentage  to  the  production  of  foodstuffs. 
The  German  power  of  resistance  depends,  therefore,  upon  the  ability 
of  the  armies  in  the  field  to  hold  the  lines;  upon  the  ability  of  the 
agricultural  quota  to  produce  enough  food  to  sustain  life  and  physical 
efficiency;  in  short,  upon  the  working  strength  of  each  part  of  the 
great  national  machine. 

LXII.    The  Social  Costs  of  the  War 
i.    FALLACIES  ABOUT  THE  COST  OF  WAR1 

Against  the  main  proposition  that  war  is  a  destructive  and  there- 
fore an  impoverishing  agency,  from  which  a  general  decline  of  comfort 
and  prosperity  must  result,  three  fallacies  have  been  invented  to 
misdirect  the  pilgrim  on  his  quest  for  truth.  The  first  is  that  war 
increases  wealth  by  circulating  money;  the  second,  that  it  increases 
wealth  by  creating  a  demand  for  the  things  it  has  destroyed;  the 
third  is  that  it  increases  wealth  by  reducing  unemployment. 

The  idea  that  war  increases  wealth  by  circulating  money  is  based 
upon  a  confusion  between  money  and  wealth.  It  is  quite  true  that 

1  By  F.  W.  Hirst.  Adapted  from  The  Political  Economy  of  War,  pp.  122-28. 
E.  P.  Button  Co.,  1915. 

ED.  NOTE. — Mr.  Hirst  is  a  well-known  English  writer  upon  economics  and  was 
for  many  years  editor  of  the  London  Economist. 


COSTS  OF  THE  WAR  549 

war  multiplies  and  debases  the  currency,  because  the  issue  of  new 
currency  is  the  most  obvious  and  the  easiest  method  by  which  a 
government  can  pay  for  troops  and  supplies.  The  poorer  the  govern- 
ment, and  the  greater  the  expense  of  a  war,  the  more  paper  and  token 
money  will  it  seek  to  circulate.  If  the  identification  of  wealth  with 
money  meant  the  identification  of  wealth  with  gold,  the  doctrine  that 
war  increases  wealth  by  circulating  it  is  manifestly  absurd.  For  in  the 
Great  War  which  broke  out  in  the  autumn  of  1914  all  the  belligerents 
except  Grea£  Britain  immediately  abandoned  the  gold  standard,  and 
even  the  British  government  issued  a  considerable  quantity  of  paper 
money  which  took  the  place  of  a  proportionate  amount  of  gold 
sovereigns  and  half-sovereigns. 

The  second  fallacy  starts  from  the  undoubted  fact  that  some  of 
the  things  which  war  destroys  are  bound  to  be  replaced.  We  say 
some,  because  the  work  of  replacement  either  during  or  after  the  war 
depends  upon  the  power  to  replace.  If  in  a  modern  war  a  village  or 
small  town,  with  all  its  churches,  farmhouses,  factories,  villas,  and 
cottages,  is  totally  annihilated  by  shells,  and  all  the  inhabitants  are 
killed  there  is  no  probability  of  replacement.  If  the  inhabitants  all 
escape,  some  of  them  are  sure  to  return  to  the  ruins  after  the  war, 
and  those  who  have  independent  means  may  sell  or  borrow  on  secur- 
ities in  order  to  rebuild  and  restore  what  has  been  destroyed.  It  is 
obvious  then  that  only  a  fraction  of  the  visible  property  destroyed 
by  war  can  be  restored.  What  that  fraction  is  will  depend  upon  the 
wealth  of  those  who  remain  and  upon  the  credit  of  the  government. 
Thus  when  a  country  has  been  devastated,  as  Poland,  Serbia,  Belgium, 
and  East  Prussia  have  been  devastated,  an  effort  will  undoubtedly  be 
made  after  the  war  by  public  and  private  credit  to  restore  with  all 
possible  speed  such  primary  necessities .  as  railways  and  railway 
equipment,  farms,  cottages,  factories,  and  the  like.  If  by  indemnity 
or  otherwise  a  large  quantity  of  money  can  be  raised  for  these  purposes, 
a  certain  temporary  stimulus  will  be  given  to  the  iron  and  steel  trades 
and  to  the  manufacture  of  machinery  and  implements  in  countries 
where  the  means  of  producing  steel  rails,  girders,  machinery,  furniture, 
and  implements  of  all  kinds  are  still  intact.  But  to  argue  that  this 
sort  of  post  bellum  stimulus  to  industry  proves  the  economic  desir- 
ability of  war  is  exactly  like  arguing  that  drunken  undergraduates, 
when  they  break  windows  in  a  university  town,  are  creators  of  wealth 
merely  because  the  owners  of  the  houses,  or  the  insurance  companies, 
or  the  parents  of  the  undergraduates  are  well  enough  off  to  pay  the 
glaziers  of  the  town  for  replacing  the  broken  windows. 


550  ECONOMICS  OF  WAR 

The  third  fallacy  that  war  is  good  for  trade  because  it  reduces 
unemployment  or  increases  employment  is  closely  related  to  that 
which  we  have  just  been  considering.  As  a  matter  of  fact  war  diverts 
employment  from  productive  to  destructive  arts.  It  enormously 
reduces  employment  in  peace  industries  and  enormously  increases 
it  in  war  industries.  Thus  at  the  beginning  ,of  the  Great  War  of  1914 
vast  numbers  of  able-bodied  men  were  thrown  out  of  employment  in 
Great  Britain  by  the  curtailment  of  foreign  trade  and  domestic  con- 
sumption. But  all  and  more  than  all  these  were  quickly  absorbed 
in  the  army,  or  in  the  work  of  producing  supplies,  armaments,  and 
ammunition  of  all  kinds  for  the  fighting  services,  with  the  result  that 
in  a  few  months'  time  the  trade  union  returns  showed  an  unusually  low 
rate  of  unemployment.  The  explanation  is  simple  enough.  The 
government  was  borrowing  about  two  millions  sterling  a  day,  which 
sum  was  supplying  the  means  of  employing  in  the  army  and  the 
armament  factories  men  and  women  for  whose  products  after  the 
outbreak  of  war  there  would  have  been  little  or  no  peace  demand. 
When  orders  poured  in  from  the  governments  of  France  and  Russia  a 
positive  congestion  arose,  with  overtime,  shortage  of  hands,  and 
transport  difficulties  of  all  kinds. 

It  must  be  clearly  understood  that  in  refuting  the  three  fallacies 
we  are  in  no  way  concerned  to  deny  that  many  individual  traders, 
shipowners,  and  financiers  may  and  do  make  fortunes  out  of  war. 
Ministers  and  public  servants  are  surrounded  by  merf  who  know  how 
to  pick  up  the  crumbs  that  fall  from  the  table  of  a  vast  and  ill- 
controlled  public  expenditure.  In  time  of  war  able  and  respectable 
men  of  business  may  become  bankrupts  while  worthless  favorites  and 
corrupt  contractors  make  money  very  quickly.  In  the  management 
of  war  finance  at  its  best  incompetence  is  too  often  matched  against 
roguery.  And  there  may  be  not  merely  incompetence  but  negligence 
or  something  worse  in  the  public  offices.  It  was  so  in  the  war  with 
the  American  colonies,  in  the  war  with  Napoleon,  in  the  Crimean  War, 
and  in  the  South  African  War.  You  may  eliminate  waste  and 
corruption  in  one  form,  but  they  will  reappear  ere  long  in  another. 
In  computing  the  real  cost  of  war  to  a  nation  allowance  should  perhaps 
be  made  for  these  war  fortunes,  which  resemble  the  sums  won  by  a 
gambler.  But  a  more  important  extenuation  of  national  losses  is 
to  be  found  in  the  diminution  of  private  luxury  which  a  great  war 
entails,  especially  in  .countries  like  Great  Britain  where  it  is  accom- 
panied by  the  screwing  up  of  a  stiffly  graduated  income  tax  and  death 
duties,  and  by  the  additional  taxation  of  alcoholic  liquor. 


COSTS  OF  THE  WAR  551 

Another  plea  in  extenuation  of  war  needs  consideration,  though  it 
does  not  quite  deserve  a  place  beside  the  three  fallacies.  It  is  this — 
that  the  pressure  of  war  taxation  and  the  withdrawal  of  so  much 
labor  from  field  and  factory  forces  many  people  to  work  who  never 
worked  before  and  induces  many  more  to  work  harder.  Women  and 
children  and  old  men  are  forced  into  employment  so  that  national 
production  is  stimulated.  Indeed,  economic  professors  have  been 
heard  to  declare  in  all  seriousness  that  the  total  income  of  a  country 
after  a  great  war  may  through  this  cause  be  greater  than  ever,  so 
that  a  nation  may  in  an  economic  sense  be  more  than  compensated 
for  its  losses  by  its  losses!  Even  during  the  long  years  of  distress 
that  followed  the  Napoleonic  wars  one  or  two  writers  tried  to  console 
the  public  for  .the  severity  of  taxation  by  the  thought  that  it  forced 
people  to  work  harder  than  they  would  have  done. 

And  so  we  return  to  the  proposition  that  war  while  it  enriches  a 
few  impoverishes  the  many.  In  his  Glasgow  lectures  Adam  Smith 
put  it  in  a  few  sentences  which  deserve  repetition:  "The  poverty  of 
a  nation  proceeds  from  much  the  same  causes  with  those  which  render 
an  individual  poor.  When  a  man  consumes  more  than  he  gains  by 
his  industry,  he  must  impoverish  himself  unless  he  has  some  other  way 
of  subsistence.  In  the  same  manner,  if  a  nation  consume  more  than 
it  produces,  poverty  is  inevitable;  if  its  annual  produce  be  ninety 
millions  and  its  annual  consumption  an  hundred,  then  it  spends,  eats 
and  drinks,  tears  and  wears  ten  millions  more  than  it  produces,  and 
its  stock  of  opulence  must  gradually  go  to  nothing." 

Then  in  reply  to  the  objection,  advanced  perhaps  by  some  youth- 
ful heckler,  that  there  is  no  harm  in  spending  money  on  war  so  long 
as  you  spend  it  at  home  and  employ  home  manufacturers,  the  philos- 
opher continued:  "Suppose  my  father  leaves  a  thousand  pounds' 
worth  of  the  necessaries  and  conveniences  of  life.  I  get  a  number  of 
idle  folk  about  me,  and  eat,  drink,  tear,  and  wear  till  the  whole  is 
consumed.  By  this  I  not  only  reduce  myself  to  want,  but  certainly 
rob  the  public  stock  of  a  thousand  pounds,  as  it  is  spent  and  nothing 
produced  for  it."  In  the  same  way  money  spent  on  war  is  wasted 
wherever  the  war  is  waged  and  wherever  the  money  employed  in 
preparations  is  laid  out.  These  propositions  should  be  translated  into 
every  language  and  written  up  in  gold  over  the  door  of  every  spending 
authority  in  the  world ;  for  there  is  no  more  insidious  fallacy  than  the 
fallacy  that  waste  is  profitable  if  it  provides  employment  at  home. 
The  taxpayer  suffers  equally  whether  a  superfluous  battleship,  or 
ort,  or  barrack  is  built  at  home  or  abroad,  by  British  or  foreign  labor. 


552  ECONOMICS  OF  WAR 

Nor  does  it  in  the  long  run  make  any  difference  whether  money  bor- 
rowed for  unproductive  purposes  is  raised  by  a  foreign  or  a  domestic 
loan.  In  either  case  the  home  taxpayer  has  to  pay  the  interest; 
which,  unless  the  capital  be  paid  off  or  repudiated,  constitutes  a 
perpetual  charge  on  the  trade  and  industry  of  the  country. 

2.     SOME  ECONOMIC  CONSIDERATIONS1 

The  material  waste  and  destruction  of  this  war,  with  its  ever- 
increasing  area  of  conflict,  have  been  far  greater,  more  various,  and 
more  widespread  than  would  have  been  thought  possible  before  the 
actual  event.  At  the  outset  most  economists  in  this  and  other 
countries  predicted  exhaustion  of  one  or  both  belligerent  groups 
before  two  years  were  passed.  The  actually  available  resources  of 
every  country  have  proved  to  be  far  greater  than  was  supposed. 
What  this  country  [England],  in  particular,  has  done  amounts  to  an 
economic  miracle.  With  some  four  million  men  taken  from  ordinary 
occupations  for  the  fighting  forces,  and  two  more  millions  for  muni- 
tions, we  have  been  able  somehow  to  maintain  the  ordinary  productive 
operations  of  our  country  at  so  high  a  level  as  to  provide  food,  clothing, 
vehicles,  and  innumerable  other  expensive  articles  for  our  own  forces 
and  a  large  surplus  for  our  Allies;  while  our  civil  population  as  a 
whole  has  been  living  upon  a  somewhat  higher  level  of  material  comfort 
than  before. 

There  are  those  to  whom  the  obvious  explanation  of  the  miracle 
is  that  we  are  living  on  our  capital,  and  they  insist  that  we  shall  have 
to  pay  afterwards  for  this  necessary  extravagance.  Now  living  upon 
capital  from  the  standpoint  of  a  nation  may  mean  one  or  the  other 
of  two  things,  or  both.  It  may  mean  that  we  have  destroyed,  dam- 
aged, or  diminished  the  plant,  buildings,  roads,  stocks,  money,  which 
we  possessed  in  this  country  before  the  war,  together  with  the  foreign 
securities  which  represented  claims  upon  real  wealth  in  other  countries. 
Or  it  may  mean  that  we  have  mortgaged  abroad  portions  of  the  wealth 
we  shall  produce  after  the  war,  by  obtaining  upon  credit  foreign  goods 
to  supplement  our  war  deficiencies.  If  either  of  these  things  has 
occurred,  it  will  seem  to  involve  a  diminution  in  our  national  income 
after  the  war — a  measure  of  poverty. 

1  By  J.  A.  Hobson.  Adapted  from  " Shall  We  Be  Poorer  after  the  War?" 
Contemporary  Review,  CXI,  43-47.  Copyright  1917  by  the  Contemporary  Review 
Company,  Ltd. 

ED.  NOTE. — Mr.  Hobson  is  one  of  the  leading  British  economists  of  this 
generation. 


COSTS  OF  THE  WAR  553 

It  is  manifest  that  our  war  economy  will  have  caused  a  letting 
down  of  most  of  those  forms  of  fixed  capital  which  can  be  let  down 
without  great  immediate  damage  to  their  productive  services. 
Repairs  and  renewals,  both  of  public  and  private  fabrics  of  a  durable 
kind,  have  been  postponed,  industrial  machinery  and  other  plants 
have  been  injured  by  overwork  and  neglect.  It  is  estimated  that  a 
sum  of  from  170  to  180  million  pounds  per  annum  represented  indus- 
trial wear  and  tear  and  renewals,  or  approximately  one-tenth  of  the 
industrial  income  of  the  nation.  A  considerable  part  of  this  expendi- 
ture, no  doubt,  has  been  suspended — i.e.,  the  work  that  would  have 
gone  for  this  purpose  has  been  diverted  into  work  for  the  productiqn 
of  immediately  consumable  wealth.  This  damage  to  future  pro- 
ductive power  is  enhanced  by  a  letting  down  of  many  stocks  of 
materials,  unfinished  or  finished  goods,  which  in  ordinary  times 
constitute  a  reserve  of  national  wealth  to  meet  the  sudden  enhance- 
ments of  demand,  and  to  secure  the  required  elasticity  of  trade. 
These  stocks,  both  in  this  country  and  throughout  the  world,  have 
been  largely  depleted  to  meet  the  urgent  needs  of  the  belligerent 
nations.  Their  reduction  must  rank  as  an  expenditure  out  of  capital 
which  will  have  to  be  made  good  before  trade  can  be  fully  restored. 
This  expenditure  of  capital  is  probably  the  most  serious  incurred  by 
this  country.  So  far  as  the  income-earning  power  of  our  capital  is 
concerned,  the  letting  down  of  plant  and  stock  is  the  measure  of  the 
direct  damage  to  capital  due  to  the  war.  Against  it  may  be  set  an 
e'stimate  of  the  new  engineering  and  other  plants  brought  into  exist- 
ence, primarily  for  war  requirements,  but  capable  of  adaptation  to 
peace  industries  afterwards. 

The  large  sale  of  American  and  other  foreign  securities,  and  the 
loans  effected  in  the  United  States  and  in  our  Dominions,  no  doubt 
involve  an  expenditure  of  past  capital  and  a  mortgage  of  future 
resources.  But  regarded  from  the  national  standpoint,  what  has 
taken  place  may  fairly  be  treated  as  a  shifting  of  securities.  We  have 
sold  securities  and  raised  credits  in  America  in  order  to  make  financial 
advances  of  at  least  equal  magnitude  to  our  Allies.  The  interest  on 
this  sum  will  represent  a  net  reduction  of  the  annual  income  of  our 
nation  available  for  distribution  here  so  long  as  this  method  of  pay- 
ment is  continued. 

Summarising  the  evidence  we  have  cited,  we  may  fairly  conclude 
that  the  material  capital  of  this  country  will  emerge  from  the  war 
not  seriously  damaged  or  diminished.  Indeed,  it  may  plausibly  be 


554  ECONOMICS  OF  WAR 

argued  that  the  better  organization  of  industry  for  obtaining  a  fuller 
use  of  the  existing  plant — e.g.,  the  introduction  of  a  shifts  system  into 
processes  where  plant  was  lying  idle  for  the  greater  part  of  the  time — 
may  almost  compensate  for  the  admitted  loss  by  letting  down  fixed 
capital  and  stocks.  In  a  word,  the  supply  of  available  industrial 
capital  for  this  country  after  the  war  will  not  be  so  greatly  diminished 
as  to  necessitate  a  total  output  of  industry  appreciably  lower  than  it 
was  before  the  war. 

How,  next,  will  it  fare  with  the  other  factors  of  production  ?  Will 
the  supply  of  labour  be  reduced  by  the  ravages  of  war  ?  The  loss  of 
life  and  the  disablement  will  amount  to  a  heavy  total.  Perhaps  it 
may  represent  a  million  men,  or  one-sixth  of  those  withdrawn  from 
ordinary  civil  occupations.  But  this  would  not  mean  a  corresponding 
reduction  of  effective  labour.  There  are  several  compensations  here. 
First  comes  the  stoppage  of  all  British  emigration  during  the  war.  At 
least  half  a  million  workers  who  would  have  gone  abroad  will  have 
been  kept  at  home.  It  may,  indeed,  be  admitted  that  the  tide  of 
emigration  after  peace  will  carry  away  large  numbers  both  of  our 
civilians  and  of  disbanded  soldiers.  But  the  pace  of  this  movement 
will  be  restrained  by  reduced  facilities  and  enhanced  costs  of  transport, 
as  well  as  by  the  lack  of  the  money  usually  required  to  make  emigra- 
tion a  success  for  men  untrained  in  agriculture.  Another  compen- 
sation is  to  be  found  in  the  newly  discovered  and  trained  powers  of 
women.  Though  many  of  the  six  hundred  thousand  who  have  already 
entered  munitions  and  other  industrial  occupations  will  doubtless 
return  to  domestic  work,  the  ranks  of  labour  will  be  enlarged  perma- 
nently, not  merely  by  those  who,  having  already  entered,  will  remain, 
but  by  a  constant  flow  of  new  female  labour  into  occupations  for  the 
first  time  opened  by  the  war.  Women  have  discovered  new  aptitudes 
and  new  confidence  in  exercising  them.  Their  status  in  industry  has 
definitely  and  permanently  risen.  It  is  no  mere  question  of  numbers. 
Both  for  women  and  for  unskilled  men  the  artificial  barriers  which 
precluded  them  from  learning  and  undertaking  large  numbers  of 
skilled  occupations  have  been  broken  down.  After  the  war  the 
proportion  of  workers,  male  and  female,  possessing  approved  skill 
in  some  productive  process  will  be  greatly  increased.  This,  of  course, 
is  equivalent  to  an  enlargement  of  the  effective  productive  power  of 
the  nation.  It  may  be  concluded  that  the  aggregate  labour-power 
available  after  the  war  will  be  quite  as  great  as  that  available  in  the 
summer  of  1914,  assuming  that  the  war  is  not  prolonged  beyond 
next  summer. 


COSTS  OF  THE  WAR  555 

Business  ability  and  enterprise  in  the  organising  and  employing 
classes  ought  to  be  enhanced  rather  than  diminished  by  the  lessons 
in  adaptation  and  experimentation  imposed  by  the  stress  of  war  needs. 
Rapid  transformations  of  plant  and  premises,  novel  technical  pro- 
cesses, revolutionary  changes  in  finance,  control,  organisation  of 
labour  have  everywhere  been  shaking  the  easy-going,  slack,  routine 
ways  and  notions  of  employers.  Thousands  of  them  have  been 
compelled  for  the  first  time  in  their  lives  to  "look  alive"  and  stir  their 
intellectual  stumps.  The  great  revelation  of  what  could  be  done  to 
maintain  and  enhance  productivity  under  the  spur  of  national 
necessity  can  never  perish  from  our  minds.  We  now  know  that  with 
the  material  and  human  resources  at  our  disposal  it  is  technically 
possible,  when  the  war  is  over,  to  begin  producing  industrial  wealth 
at  a  considerably  faster  rate  than  it  was  produced  three  years  ago. 
The  great  economies  effected  by  reducing  our  railways  to  a  single 
system  are  only  one  striking  example  of  an  economy  of  capital  and 
labour  which  will  certainly  be  conserved  in  the  future. 

3.    WAR  AND  POPULATION1 

The  suggestions  of  the  following  paragraphs  are  not  put  forward  as 
prophecies,  but  rather  to  indicate  some  of  the  possibilities  which  may 
have  to  be  dealt  with  when  the  great  conflict  comes  to  an  end  and  the 
processes  of  readjustment  begin. 

The  direct  effects  of  the  war  upon  the  populations  of  the  belligerent 
nations  are  but  too  terribly  apparent.  Not  only  have  deaths  and 
incapacitating  casualties  run  into  the  millions;  not  only  is  there  this 
enormous  loss  of  numbers — the  wastage  has  been  so  concentrated 
among  males  of  fighting  age  as  to  work  a  serious  distortion  of  the 
population  structure.  Economically,  the  proportion  of  producer 
to  consumers  has  been  reduced.  Biologically,  the  balance  of  the  two 
sexes  is  disturbed  in  the  reproductive  years  of  life  and  the  capacity 
of  monogamic  increase  is  correspondingly  impaired.  Even  though 
birth-rates  may  nevertheless  rally  at  the  close  of  the  struggle,  this 
disproportion  of  ages  and  sexes  cannot  thereby  be  corrected.  It  will 
leave  its  disfiguring  and  disabling  effects  for  decades  to  come. 

Nor  will  the  present  population  alone  bear  the  scars.  If  there  is 
any  significance  in  heredity,  and  any  truth  in  the  contention  that 

1  By  James  A.  Field.  From  "Problems  of  Population  after  the  War,"  Amer- 
ican Economic  Review,  VII,  Suppl.,  233-34.'  Copyright  by  the  American  Economic 
Association,  1917. 

ED.  NOTE. — Mr.  Field  is  professor  of  political  economy  in  the  University  of 
Chicago. 


556  ECONOMICS  OF  WAR 

modern  warfare  accomplishes  an  adverse  selection  through  the 
slaughter  of  the  physically  bravest  and  best,  then  the  new  generation, 
and  through  it  posterity,  must  be  the  continuance  of  an  impoverished 
breed.  This,  too,  is  a  damage  that  mere  volume  of  births  can  hardly 
mend.  The  two  inches  of  average  stature  which  the  French  people 
is  said  to  have  lost  in  the  Napoleonic  wars  were  lost  in  spite  of  a 
tolerably  vigorous  revival  of  the  birth-rate  after  those  devastating 
campaigns.  And  though  we  may  question  whether  the  selective 
agency  of  war  operates  with  such  obvious  effect  upon  the  human 
characteristics  of  body  and  mind  that  most  concern  us,  we  cannot 
well  doubt  that  lasting  modifications  of  our  racial  endowment  are  now 
in  process  on  the  battlefields  of  Europe.  It  does  not  follow  that 
deterioration  will  be  at  once  manifest  when  the  next  generation 
succeeds  to  leadership  in  Western  civilization.  Indeed,  it  is  more  to 
be  feared  that  civilization  may  conform  itself  imperceptibly  to  the 
lowered  standards  of  a  depleted  stock.  In  any  event,  history  that 
might  have  been  is  now  cut  off  with  the  lives  of  those  whose  unborn 
descendants  would  have  made  it. 

4.    ULTIMATE'  CONSIDERATIONS1 

It  is  difficult  to  appraise  the  real  cost  of  war.  A  recital  of  the 
figures  of  war  debts  only  serves  to  conceal  the  truth.  On  the  purely 
material  side,  the  best  we  can  do  is  to  ascertain  the  extent  of  the  loss 
of  new  capital  and  the  amount  of  depreciation  of  the  existing  industrial 
equipment  of  the  national  resources  of  a  nation.  On  the  human  side, 
we  can  determine  the  number  of  casualties,  but  it  is  impossible  to 
measure  the  different  values  to  the  community  of  those  who  are 
killed.  A  genius  lost  involves  an  immeasureable  cost  viewed  in 
national  terms.  The  loss  of  an  ordinary  soldier  is  relatively  incon- 
sequential. 

But  quite  apart  from  the  loss  of  life,  war  entails  enormous  sac- 
rifices in  human  resources.  The  sacrifice  in  health  of  the  men  who 
have  been  for  years  in  the  trenches  cannot  be  measured  in  terms  of 
money,  for  there  is  no  satisfactory  method  of  reducing  the  values  of 
human  lives  and  human  health  to  pecuniary  terms.  The  war  has 
also  impoverished  the  people  of  many  lands  and  this  carries  with  it  a 
real  lowering  in  the  standards  of  life.  There  is  less  food,  bodies  are 
less  adequately  protected  with  clothes  and  shelter;  medical  service 
is  scarcer,  and  in  general  conditions  are  less  conducive  to  healthful 

1  An  editorial. 


COSTS  OF  THE  WAR  557 

living.  Future  generations  of  Belgians,  Roumanians,  Poles,  Russians, 
Turks,  Armenians,  and  Persians,  not  to  mention  others,  will  pay  the 
penalty  of  this  generation  of  economic  disorganization.  Preventive 
measures  can  alleviate  somewhat  the  future  wretchedness  which  is  the 
product  of  war,  but  it  cannot  eliminate  it  entirely.  Children  will 
be  reared  undernourished  and  without  proper  medical  attention, 
entailing  costs  that  will  manifest  themselves  in  succeeding  ages. 
Moreover,  the  bodies  of  the  mature  population,  under  the  intense 
strain  of  a  long  war,  become  less  immune  to  the  ravages  of  disease. 
The  lowering  of  health  standards  and  the  lessening  of  human  vitality 
tend  to  have  viciously  cumulative  effects;  for  the  war  necessitates 
low  standards  of  living,  low  standards  of  living  cause  low  productivity, 
and  low  productivity  in  turn  causes  low  standards  of  living  for  long 
years  to  come.  Poland,  for  instance,  has  been  impoverished  by  the 
war  to  an  extent  that  renders  it  almost  impossible  to  gain  the  initial 
momentum  necessary  to  recuperation  and  to  return  to  erstwhile  living 
conditions. 

Even  in  countries  such  as  England  and  the  United  States,  which 
do  not  bear  the  brunt  of  invasion,  and  where  the  economic  organiza- 
tion is  such  as  to  prevent  starvation,  or  even  a  serious  lessening  of 
national  vitality,  there  are  still  serious  costs  to  be  reckoned  with. 
The  lowering  of  labor  standards  carries  with  it,  unless  our  standards 
were  false,  serious  impairment  of  efficiency  as  measured  in  terms  of 
long-run  national  considerations.  Much  of  the  labor  of  women  now 
used  in  factories  will  carry  with  it  its  meed  of  cost  in  shortened  lives 
and  in  ill-health  in  the  years  to  come.  The  increasing  employment  of 
children  and  the  curtailment  of  education  among  the  youth  prevent 
a  development  of  the  full  resources  of  the  coming  generation  of 
manhood  and  womanhood.  In  a  less  obvious  way  there  is  a  great 
social  sacrifice  involved  in  the  diversion  of  energy  from  scientific 
pursuits,  from  social  study  and  investigation,  from  art  and  literature, 
to  immediate  material  pursuits  of  military  importance.  The  sort  of 
life  which  conditions  the  element  of  genius  and  originality  is  almost 
prohibited,  for  genius  and  originality  can  usually  ripen  only  amid 
leisure;  the  world  of  ideas  and  values  out  of  which  an  improving 
society  eventually  comes  is  almost  at  a  standstill  during  the  war.1 

1  This  of  course  does  not  apply  to  experiments  in  governmental  control  of 
industry.  It  is  possible,  too,  that  the  inventions  called  forth  for  use  in  the  war 
may  result  in  great  ultimate  value  for  times  of  peace.  The  statement  has  been 
made,  however,  by  those  in  position  to  know,  that  few  great  inventions  have  thus 
far  come  from  the  laboratories  of  war. 


558  ECONOMICS  OF  WAR 

i 

Another  of  the  immeasurable  costs  of  war  lies  in  the  fact  that  war 
arrests  the  training  of  the  future  leaders  of  a  nation.  Business 
responsibilities,  and  the  necessity  of  keeping  the  home  fires  burning, 
make  it  impossible  to  send  a  large  proportion  of  the  mature  men  of 
a  nation  to  war.  It  is  the  youth  who  must  bear  the  brunt  of  the 
conflict.  A  nation  is  thus  stripped  of  the  services  of  those  who  would 
naturally  be  the  future  leaders  in  community  and  civic  enterprise. 
Even  with  those  who  return,  the  years  spent  in  the  army  have  cost 
them  in  many  instances  the  labor  and  study  which  otherwise  would 
have  been  spent  in  cultural,  technical,  and  vocational  training,  and  it 
hence  tends  to  lessen  their  efficiency  for  leadership  in  the  future. 
This  is  doubtless  offset  to  some  extent  by  training  which  the  war  itself 
offers  in  developing  alertness  and  resourcefulness;  but  the  specializa- 
tion of  the  present  war  coupled  with  the  predominance  of  trench 
warfare  probably  renders  such  training  less  valuable  than  in  former 
wars.  Particularly  is  this  true  in  view  of  the  fact  that  the  social 
phenomena  of  the  complicated  world  of  today  require  training  and 
study  of  a  very  different  sort  from  what  was  required  for  leadership 
under  more  primitive  conditions  of  existence. 

The  war  affects  the  temper  and  character  of  life  in  many  ways. 
It  profoundly  modifies  the  habits,  practices,  customs,  and  ideals  of 
the  civilian  population  as  well  as  of  those  actively  engaged  in  the 
conflict.  Some  of  these  changes  are  bad,  many  of  them  are  good, 
and  it  is  possible  that  the  ultimate  results  in  the  way  of  new  social 
values  may  quite  offset  the  immediate  losses  occasioned  by  war.  It 
is  impossible  to  make  at  this  time  a  full  recital  of  the  changes  which 
the  war  has  wrought  in  our  social  and  economic  life,  but  they  are 
everywhere  in  evidence.  For  instance,  we  have  become  reconciled, 
at  least  for  the  period  of  the  war,  to  a  control  of  industrial  activities 
on  the  part  of  the  government  which  would  have  been  unthinkable  in 
this  individualistic  country  only  two  years  ago.  Not  all  of  this  will 
be  retained  in  the  peace  which  is  to  follow,  but  it  is  evident  that 
we  will  have  a  much  larger  measure  of  governmental  direction  than 
we  have  had  in  the  past.1  Much  of  the  experience  of  the  war  in 
governmental  control  may  be  utilized  in  ways  that  will  promote  long- 
run  welfare  in  the  years  of  peace.  For  instance,  it  appears  that 
the  federal  organization  of  the  labor  market  which  the  war  has 

1  See  chapter  xiv  for  a  consideration  of  the  gains  which  may  come  out  of  the 
war  in  the  way  of  more  efficient  organization. 


THE  COSTS  OF  THE  WAR  559 

effected1  is  a  piece  of  machinery  so  essential  to  the  successful  working 
of  our  industrial  system  that  it  will  never  be  given  up.  We  have  also 
come  to  appreciate  more  fully  than  before  the  importance  of  large 
national  production,  and  a  useful  distinction  has  been  drawn  between 
essentials  and  nonessentials,  which  may  prove  serviceable  in  peace 
as  well  as  in  war. 

A  subtle  change  which  the  war  has  wrought  is  to  be  found  in  the 
increasing  number  of  women  employed  in  industry.  Their  active 
participation  in  the  affairs  of  a  world-wide  economic  society  makes  a 
return  to  the  old-fashioned  cloistered  American  home  almost  impos- 
sible. The  situation  carries  with  it  far-reaching  implications  in  the 
matter  of  family  ideals  and  the  organization  of  domestic  life  around 
the  hearthstone.  Who  can  say  whether  this  will  lead  to  ultimate 
gains  or  to  ultimate  losses  ? 

These  are  but  a  few  examples  of  the  many  changes  which  the  war 
is  effecting.  They  relate  not  only  to  the  elements  of  our  life  and  its 
organization  but  also  to  its  ideals.  Our  standards  of  judgment  are 
very  different  from  what  they  were  before  the  war  and  since  values 
and  costs  can  be  measured  only  in  these  social  standards,  it  is  impos- 
sible to  make  an  accurate  statement  in  quantitative  terms  of  the 
ultimate  costs  of  the  war.  Indeed,  in  view  of  these  changing  stand- 
ards it  is  impossible  to  tell  whether,  all  factors  considered,  and  looking 
into  the  far  distant  future,  the  war  has  entailed  a  net  cost  to  society. 
It  depends  upon  which  scheme  of  things  one  prefers  in  life,  and,  as  ever, 
de  gustibus  non  disputandum  est, 

1  Seejielection  LVIII,  6. 


XIV 

WAR'S  LESSONS  IN  THE  PRINCIPLES  OF 
NATIONAL  EFFICIENCY 

Introduction 

There  are  two  sets  of  factors  which  are  difficult  to  harmonize  in 
the  modern  industrial  state.  One  consists  of  the  technical  demands 
of  an  efficient  producing  machine;  the  other  of  the  psychological 
needs  of  the  men  who  must  work  the  machine  without  becoming  mere 
cogs  in  it.  At  present  technical  efficiency  calls  for  increased  centrali- 
zation of  a  sort  that  can  most  quickly  and  simply  be  attained  through 
what  labor  stigmatizes  as  "state  socialism."  On  the  other  side 
stands  the  imperative  need  of  giving  the  increasing  power  of  labor 
effective  channels  of  expression,  and  satisfying  its  twofold  demand 
for  more  goods  and  more  voice  in  the  control  of  industry.  Of  the  two, 
the  former  is  the  easier  for  the  economist  to  reason  about,  but  the 
latter  is  the  more  vital.  Unless  a  spirit  of  co-operation  can  be 
established,  labor  will  go  back  to  the  restriction  of  output,  and  we  shall 
be  back  in  a  "vicious  circle"  of  inefficiency  which  will  make  satis- 
factory conditions  for  the  masses  well-nigh  impossible  of  attainment. 
The  harmonizing  of  these  demands  is  the  great  task  of  reconstruction. 

LXIII.    Industrial  Gains  from  War1 

Mr.  Arthur  Greenwood  discusses  the  effects  of  the  war  on  capital, 
management,  and  labor.  As  regards  the  first,  the  shortage  of  labor 
resulted  in  the  improvement  and  the  use  of  machinery  being  widely 
extended,  new  plants  being  laid  down,  and  new  buildings  being  erected. 
Management  in  its  turn,  previously  "overstaffed  and  underworked," 
reorganized  itself  on  a  basis  of  great  efficiency;  it  sought  new  forms  of 
capital,  developed  the  subdivision  of  labor,  and  rearranged  processes 
and  workshops. 

Of  labor  serious  sacrifices  were  asked.  Notwithstanding  that 
workers  had  enlisted  in  hundreds  of  thousands,  labor's  contribution 

1  Adapted  from  "The  Reorganization  of  Industry  in  Great  Britain,"  Monthly 
Review  of  the  Bureau  of  Labor  Statistics  (1917),  pp.  331-33. 

560 


WAR'S  LESSONS  IN  NATIONAL  EFFICIENCY  561. 

to  production  must  be  not  only  maintained  but  increased.  It  would 
be  possible  to  enlarge  the  output  by  the  existing  supply  of  workers 
toiling  harder  and  for  longer  hours,  or  by  the  dilution  of  labor  through 
the  employment  of  semiskilled  workers  for  certain  kinds  of  skilled 
work  and  of  people  who  had  not  been  employed  or  had  already  left 
industrial  life. 

But  such  changes  could  not  be  made  without  the  co-operation  of 
labor,  and  appeal  was  made  to  the  trade-unions  to  give  up  their  most 
cherished  achievements.  Accordingly,  trade-union  regulations  were 
set  aside,  the  right  to  strike  was  sacrificed  over  a  large  part  of  industry, 
compulsory  arbitration  was  accepted,  and  industry  came  to  be 
conducted  on  the  basis  of  the  agreement  between  the  trade-unions 
and  the  government,  together  with  the  legislation  dealing  with  the 
munition  industries. 

On  their  part,  the  trade-unions  desired  certain  safeguards.  It  was 
agreed,  therefore,  that  the  changes  made  should  not  prejudice  wage 
rates;  that  due  notice  should  be  given  of  further  alterations  in  working 
conditions;  that  priority  of  employment  after  the  war  should  be 
given  to  the  workmen  affected  by  the  change;  and,  most  important  of 
all,  that  after  the  war  there  should  be  in  every  case  the  restoration  of 
previous  conditions. 

With  regard  to  the  last  provision  the  author  points  out  that  the 
economic  system,  under  the  pressure  of  war,  has  increased  its  efficiency 
of  production  over  a  fairly  large  range  of  industries  and  an  enormous 
number  of  people  have  increased  their  industrial  experience  and 
efficiency. 

"Women  transport  workers,  clerks,  and  shop  assistants,  and 
semiskilled  men  and  women  have  widened  their  experience  during 
the  war,  and  a  large  number  have  gained  facility  in  the  handling  of 
machines.  All  these  people  will  remain  as  a  body  of  workers  more 
efficient  and  more  experienced  than  they  were  before  the  war.  Knowl- 
edge of  up-to-date  and  more  efficient  methods  will  be  more  widely 
spread.  The  experience  which  employers  have  gained  during  the  war 
regarding  the  possible  productivity  of  labor,  the  value  of  further 
specialization  of  labor,  and  the  economy  of  machinery  will  not  be 
blotted  from  their  memories  when  the  war  comes  to  an  end.  Rather 
will  there  be  a  strong  desire  to  make  the  industrial  system  a  more 
efficient  instrument  of  production  than  it  has  been  in  the  past — a 
desire  which  will  be  strongly  re-enforced  by  the  cry  of  foreign  com- 
petition and  by  the  fight  for  world  trade.  But  even  if  the  pressure 


562  ECONOMICS  OF  WAR 

of  circumstances  were  not  immediately  overwhelming,  war-time 
developments  will  sooner  or  later  become  a  guide  to  industrial  organi- 
zation." Only  by  act  of  Parliament,  rendering  illegal  for  a  term  of 
years  the  practices  which  have  come  into  operation  during  the  war 
could  the  changes  which  have  been  made  be  rendered  null,  and  such  a 
law  would  not  be  practicable. 

LXIV.     Some  Economic  Gains  from  the  War1 

One  of  the  most  remarkable  economic  lessons  of  the  war  has  been 
its  revelation  of  the  reserve  forces  of  national  credit.  Is  it  not 
reasonable  to  suppose  that  the  financial  powers  of  the  state,  so  success- 
fully mobilized  in  the  autumn  of  1914  for  the  support  of  the  shattered 
fabric  of  private  finance,  can  be  made  available  for  the  purposes  of 
assisting  industrial  and  commercial  recovery  after  the  war  ?  Already 
the  proposal  of  a  state-assisted  financial  corporation  for  the  acquisition 
of  new  foreign  markets  has  received  much  support  in  influential 
quarters.  Assuming  that  the  war  is  brought  to  a  successful  end  at 
no  distant  date,  our  national  credit  will  emerge  not  seriously  impaired, 
and  though  there  may  be  heavy  demands  upon  it  during  the  period  of 
reconstruction,  any  failure  of  our  private  banking  system  to  respond 
adequately  to  the  needs  of  the  economic  situation  will  certainly  evoke 
an  imperative  demand  that  state  credit  shall  be  utilized  again  to  meet 
the  grave  emergency  that  would  arise  if  capital  and  labor  should  be 
prevented  from  producing  wealth  through  deficiency  in  the  monetary 
apparatus  of  the  country. 

But  though  all  the  separate  factors  of  production  may  suffice — 
plant,  labor,  directing  energy,  and  credit — there  remains  the  grave 
question:  Can  they  be  kept  in  effective  co-operation?  For  several 
years  before  the  war  industry  was  in  a  state  of  unprecedented  dis- 
turbance by  reason  of  the  conflicts  between  employers  and  workers 
in  the  fundamental  trades.  The  root  of  the  trouble  was  the  recent 
stoppage  of  that  general  improvement  in  wages  and  working-class 
standards  of  comfort  which  had  been  going  on  for  several  decades, 
and  the  actual  fall  of  real  wages  which  had  taken  place  in  many  staple 
trades  by  failure  of  wage-rates  to  keep  pace  »with  the  continuous  rise 
of  prices.  Now,  shall  we  be  able  to  look  forward  to  such  peaceful 
relations  between  capital  and  labor  after  the  war  as  will  stimulate 

1  By  J.  A.  Hobson  (see  p.  552).  Adapted  from  "Shall  We  Be  Poorer  after 
the  War  ?  "  The  Contemporary  Review,  CXI,  552,  47-53.  Copyright,  1917,  by  the 
Contemporary  Review  Co.,  Ltd. 


WAR'S  LESSONS  IN  NATIONAL  EFFICIENCY  563 

both  employers  and  workers  to  co-operate  energetically  in  adopting 
the  improvements  of  scientific,  mechanical,  and  business  organization 
needed  for  effective  production  ?  No  simple,  confident  reply  can  be 
given  to  this  question.  The  affirmative  answer  seems  to  me  to  depend 
upon  the  successful  solution  of  two  problems,  at  first  sight  separate, 
but  afterwards  seen  to  be  closely  related.  A  prime  need  of  the  eco- 
nomic situation  for  the  industrial  world  as  a  whole,  and  for  this  country, 
will  be  the  need  of  more  saving — i.e.,  the  application  of  a  larger  amount 
of  productive  energy  to  the  making  of  roads,  railways,  ships,  machin- 
ery, buildings,  and  the  replacement  everywhere  of  depleted  stocks  of 
materials.  For  though  the  material  equipment  of  this  country  may 
not  have  suffered  heavy  damage  as  a  whole,  there  will  be  a  great  deal 
of  new  capital  expenditure  involved  in  restoration  and  adaptation  to 
the  new  conditions,  and  our  nation  will  have  to  play  a  considerable 
part  in  the  larger  task  of  restoration  in  Belgium,  France,  Poland, 
Serbia,  and  other  war-broken  lands.  Moreover,  it  will  be  difficult 
and  unwise  to  ignore  the  calls  of  South  America  and  other  distant 
lands,  dependent  on  the  stream  of  capital  from  us  for  the  development 
of  world  resources  upon  which  we  shall  need  to  draw  ever  more  abun- 
dantly, lands  which  have  been  starved  of  this  fertilising  stream  during 
the  years  of  war.  We  must,  therefore,  considerably  increase  the 
total  volume  of  our  annual  savings.  If  we  saved  400  millions  before 
the  war,  we  must  save  at  least  500  or  even  600  millions  afterwards. 
On  the  face  of  things  this  does  not  seem  impracticable,  or  particularly 
difficult,  on  the  assumption  that  production  goes  on  fully  and 
smoothly.  For  a  strong  stimulus  to  saving  will  be  present  in  the  shape 
of  a  high  rate  of  interest,  and  the  distribution  of  wealth  will  apparently 
be  favorable  to  the  process.  High  taxation  will  no  doubt  appreciably 
reduce  the  amount  thus  available  for  private  saving.  But  that 
portion  of  public  revenue  expended  upon  housing,  education,  and 
other  productive  services  may  reasonably  be  reckoned  as  economic 
savings.  If,  as  is  likely,  the  state  goes  into  business  upon  a  far  larger 
scale  than  hitherto,  nationalising  the  railroads,  and  perhaps  the  mines 
and  the  liquor  trade,  enlarging  the  functions  of  the  post  office,  and 
taking  on  large  departments  of  insurance  and  finance,  the  increased 
capital  needed  for  such  expansions  will  be  a  compulsory  saving  exacted 
by  taxation.  But  however  the  task  may  be  accomplished,  the  essential 
point  is  that  more  saving  will  have  to  take  place  than  before  the  war. 

Does  that  mean  that  a  larger  proportion  of  the  general  income 
must  be  saved — i.e.,  that  a  larger  proportion  of  the  annual  product 


564  ECONOMICS  OF  WAR 

must  be  in  the  shape  of  capital  goods,  a  smaller  in  the  shape  of  con- 
sumable goods?  Must  we  reduce  consumption  in  order  to  get  the 
larger  saving  we  require  ?  Let  me  put  the  issue  even  more  sharply. 
In  order  that  interest  may  be  high,  must  wages  be  low  ?  For  if  out 
of  a  given  annual  product  more  must  be  saved,  then  less  must  be 
spent;  if  interest  and  profits  are  raised,  wages  must  be  lowered.  This 
is  what  many  people  think  must,  and  will,  happen.  During  the  war 
labor  has  been  made  artificially  scarce  by  enlistment  and  enormous 
government  contracts.  So  employment  has  been  full  and  wages  high. 
After  the  war  labor  will  be  abundant  and  government  contracts  will 
stop.  So  employment  will  be  slack  and.  wages  low.  Some  will  add 
that,  even  if  this  slackness  of  employment  can  be  avoided  and  industry 
can  be  actively  resumed,  high  interest  and  high  taxation  must  take  so 
large  a  share  of  the  product  that  real  wages  must  be  low.  Now  either 
form  of  this  argument  brings  us  to  an  impasse.  For  rnuch  as  the 
economic  necessities  of  the  situation  are  seen  to  demand  a  higher  rate 
of  saving  than  before  the  war,  they  can  also  be  seen  to  demand  a 
higher  rate  of  real  wages,  a  higher  standard  of  working-class  con- 
sumption. This  may  not  be  taken  to  be  an  economic  necessity.  It 
may  be  said  that  the  rate  of  real  wages  before  the  war,  or  even  a  lower 
rate,  can  be  adequate  to  support  the  workers  in  reasonable  efficiency 
until  a  period  of  reconstruction  has  passed  and  times  warrant  a  return 
to  the  tradition  of  working-class  progress. 

But  this  evades  the  real  issue,  which  is  one  not  primarily  of  eco- 
nomic but  of  psychological  necessity.  The  workers  will  not  consent 
to  return  after  the  war  to  steady  and  pacific  co-operation  with  capital 
in  a  new  era  of  progressive  industry,  unless  they  are  assured  wages  and 
other  conditions  of  employment  more  favorable  than  prevailed  before 
the  war.  The  experiences  of  war  time  will  have  convinced  both  the 
workmen  who  have  fought  and  those  who  have  stayed  at  home  that 
industry  can  afford  a  higher  standard  of  wages.  If  the  nation  has 
been  able  to  afford  the  gigantic  extravagances  of  this  war,  and,  at  the 
same  time,  to  maintain  the  working  classes  at  a  higher  level  of  con- 
sumption than  before  out  of  the  current  output  of  wealth  (with  six 
million  men  withdrawn  from  production),  it  will  be  idle  to  attempt  to 
persuade  them  afterwards  to  submit  to  a  cutting  down  of  standards 
on  the  plea  that  industry  cannot  support  the  higher  rates.  Any  doubt 
that  may  exist  upon  this  matter  will  be  quickly  resolved  by  the  first 
attempt  to  impose  upon  any  great  organised  trade  a  reduction  of 
wage-rates.  The  tone  of  the  working  classes  after  the  war  is  not 


WAR'S  LESSONS  IN  NATIONAL  EFFICIENCY  565 

likely  to  be  one  of  submissive  apathy.  It  is  likely  to  be  one  of  irri- 
tability and  suspicion.  The  projects  which  employers  and  officials 
are  canvassing  so  busily  for  introducing  scientific  management, 
business  syndication,  compulsory  arbitration,  profit  sharing  and 
bureaucratic  socialism,  with  the  laudable  object  of  enhancing  pro- 
ductivity and  reducing  friction,  are  already  beginning  to  stir  uneasi- 
ness among  the  more  forward-looking  labour  leaders.  They  seem  to 
see  an  attempt  to  impose  upon  the  workers  from  above  an  organization 
of  industry  in  which  the  will  and  interests  of  the  employers  will 
operate  through  the  machinery  of  government  with  the  new  militarism 
in  reserve  for  a  final  guarantee  of  industrial  peace.  These  suspicions 
are  likely  to  spread  rapidly  during  the  preliminary  period  of  resettleT 
ment,  unless  employers  and  the  government  make  some  genuine 
effort  to  enlist  the  active  co-operation  of  trade  unions  and  other 
working-class  bodies,  accompanied  by  explicit  guarantees  for  wages 
and  employment,  and  a  substantial  share  in  the  government  of  indus- 
try, so  far  as  it  affects  the  interests  of  labour.  In  order  to  raise  the 
technique  and  organisation  of  our  industry  to  a  higher  level,  the  work- 
ers must  be  got  to  see  their  own  substantial  gain  from  the  enhanced 
productivity  to  which  their  labour  is  required  to  contribute. 

The  net  result  of  this  general  analysis  is  that,  if  we  are  to  escape 
becoming  poorer  after  the  war,  we  must  become  richer.  This  is  not 
the  empty  truism  it  may  at  first  appear.  It  signifies  in  the  first  place 
that  a  mere  return  to  the  standard  and  volume  of  production  of  wealth 
before  the  war  is  impossible.  For  out  of  the  after-war  production  a 
far  larger  amount  will  have  to  be  taken  for  interest  and  dividends. 
Moreover,  apart  from  the  payment  of  war  expenses  in  the  shape  of 
interest  on  loans  and  sinking  fund,  the  needs  of  public  revenue  for 
social  services,  and  probably  for  the  maintenance  of  an  expensive 
army,  will  involve  a  larger  total  burden  of  taxation  than  before  the 
war.  These  enhanced  payments  to  capital,  fund-holders,  and  the 
state  would  involve  a  heavy  reduction  of  real  wages,  if  the  total 
production  were  no  greater  than  before  the  war.  But  labour,  as  we 
diagnose  the  case,  would  not  consent  to  such  reduction.  If  it  be  said 
that  the  operation  of  economic  principles  would  compel  labour  to  sub- 
mit to  the  inevitable,  I  would  reply  that  the  evidence  does  not  show 
this  course  to  be  inevitable.  There  is  an  alternative  course,  viz.,  so  to 
raise  the  total  productivity  of  industry  as  simultaneously  to  provide 
out  of  the  enlarged  output  of  annual  wealth  the  increased  aggregate 
of  interest  and  public  revenue,  together  with  a  higher  standard  of 


566  ECONOMICS  OF  WAR 

wages  and  consumption  for  the  working  classes.  The  economic 
stimuli  of  production  brought  into  operation  during  war  time  show  the 
possibility  of  increased  production  even  under  an  improvised  organi- 
sation. Our  supreme  task  must  be  to  devise  stimuli  which,  though 
less  acute  in  their  appeal  than  those  supplied  by  the  emergency  of 
war,  shall  yet  in  peace  be  adequate  to  operate  successfully  in  a  care- 
fully reformed  organisation  of  industry,  in  which  the  interests  of  all 
participants — capital,  labor,  ability,  and  the  consumer — shall  be  duly 
represented.  If  these  changes  in  our  industrial  arrangements  for 
producing  and  distributing  wealth  amount  to  a  revolution,  better  this 
sort  of  revolution  than  the  other  sort,  which  history  teaches  us  may 
follow  war. 

LXV.    The  Theory  of  National  Efficiency  in  War  and  Peace1 

I.      WAR  AND   SOCIAL  READJUSTMENT 

The  idea  that  war  sidetracks  social  reform  bids  fair  to  become  one 
of  the  world's  exploded  fallacies.  It  is  true  that  social  reform  demands 
attention  and  war  diverts  attention  elsewhere — social  reform  is 
expensive  and  war  leaves  us  with  no  resources  to  spare.  The  impli- 
cation is  either,  (i)  that  social  reform  is  an  unproductive  luxury,  or 
(2)  that  it  is  productive  only  of  long-run  results  too  distant  to  play 
any  part  in  winning  the  war,  or  (3)  that  it  is  regarded  in  one  or  the 
other  of  these  lights  by  those  who  will  have  the  say  in  deciding  what 
is  to  be  done. 

If  social  reform  aims  to  free  men  from  the  need  of  hard  and 
conscientious  work  it  is  an  expensive  luxury,  and  we  cannot  afford  it 
in  time  of  war.  But  if  social  reform  means  increasing  control  by 
society  over  industry  and  other  private  activities,  for  the  furthering 
of  society's  ends;  if  it  means  an  attack  on  undue  inequalities  of  wealth, 
active  supervision  of  profits,  wages,  and  consumption,  and  active 
endeavor  by  society  as  a  whole  to  increase  industrial  efficiency,  this 
kind  of  "social  reform"  is  the  sort  it  is  a  luxury  to  do  without.  And 
when  the  pinch  of  a  national  emergency  becomes  very  severe,  and  we 
must  become  an  efficient  nation  whether  we  want  to  or  not,  we  cannot 
afford  to  do  without  those  kinds  of  social  reform  that  stand  for  col- 
lective efficiency.  Germany  has  taken  the  lead  in  social  insurance 
and  prevention  of  unemployment,  not  because  Germany  is  more 

1  By  J.  Maurice  Clark.  Adapted  from  "The  Basis  of  War-time  Collectivism," 
American  Economic  Review  (December,  1917),  pp.  772-90. 


WAR'S  LESSONS  IN  NATIONAL  EFFICIENCY  567 

humanitarian  than  other  countries,  but  because  she  cares  for  economic 
efficiency  on  a  national  scale. 

Now  war  has  forced  the  democratic  countries  to  an  accounting 
of  human  life  and  welfare  on  the  same  basis  which  Germany  seems  to 
have  followed  as  a  matter  of  nationalistic  policy. 

The  nation  that  contemplates  war  cannot  afford  to  see  the  health 
of  its  citizens  wasted  by  the  accidents,  diseases,  and  other  unpaid 
damages  of  industry,  or,  in  fact,  in  any  other  way.  And  it  cannot 
afford  to  see  their  moral  unity  shaken  by  the  bitterness  which  those 
who  have  suffered  crippling  loss  and  misfortune  feel  toward  the  classes 
who  have  been  more  fortunate  or  toward  the  state  which  has  shown 
no  adequate  sense  of  responsibility  for  such  regular  and  inevitable 
wreckage  of  human  life.  It  might  almost  seem  that  militarism  has 
set  a  higher  value  on  human  health  and  welfare  than  industrialism, 
and  if  that  be  true,  so  much  the  better  for  militarism.  But  we  are 
rapidly  coming  to  the  conclusion  that  industrialism  can  no  more  afford 
these  wastes  than  militarism  can.  What  the  war  has  done  is  to  force 
upon  us  in  unmistakable  form  the  need  of  expanding  our  thinking  to  a 
scale  as  wide  as  the  nation's  whole  needs,  its  whole  resources,  and 
everything  that  affects  them  for  good  or  for  ill. 

II.      COMPETITIVE   EFFICIENCY  VERSUS   NATIONAL  EFFICIENCY 

A.  What  does  society  want? — When  war  demands  that  all  the 
productive  force  we  can  spare  be  put  into  its  workshops,  these  forces 
must  be  diverted  from  the  pursuits  of  peace.  Where  we  follow  the 
method  of  private  enterprise  in  making  the  transfer,  the  government 
finds  itself  not  merely  paying  men  to  make  munitions  and  so  turning 
productive  forces  in  'that  direction,  but,  to  just  the  extent  that  it 
pays  extra  high  wages  to  munition  makers,  it  places  them  in  a  position 
(of  which  they  do  not  neglect  to  take  advantage)  to  bid  with  their  own 
pocketbooks  against  the  government  by  hiring  as  much  labor  as  they  can 
command  to  make  for  them  the  cigars,  mctrolas,  pianos,  and  other  unac- 
customed luxuries  which  their  high  wages  enable  them  to  afford.  And 
this  paradox  is  quite  characteristic  of  the  methods  of  unco-ordinated 
individualism  when  used  to  mobilize  a  nation's  resources  to  meet  a 
supreme  and  all-absorbing  national  need. 

If  the  free-exchange  way  of  doing  things  is  so  absurdly  organized 
that  it  tends  partly  to  defeat  its  own  ends  in  the  fashion  just  indicated, 
why  is  not  this  just  as  true  in  peace  time  as  in  war  ?  One  reason  why 
high  wages  do  not  defeat  the  national  purpose  in  time  of  peace  is, 


568  ECONOMICS  OF  WAR 

(i)  that  luxuries  for  wage  earners  are  in  themselves  a  large  part  of  the 
national  economic  purpose  and,  (2)  that  the  nation  is  as  ready  to 
produce  them  for  one  group  as  for  another,  and  those  who  command 
high  wages  are  ipso  facto  the  elect.  In  time  of  peace  the  nation  wants 
few  things  as  a  nation.  The  public  defense  is  cared  for  with  a  rela- 
tively small  expense,  and  all  the  needs  that  are  general  enough  to  be 
met  by  government  agencies — federal,  state,  or  local — absorbed  less 
than  one-tenth  of  our  people's  expenditure  before  the  present  war. 
The  rest  goes  for  things  that  individuals  want  and  purchase,  as 
individuals,  and  if  the  community  has  any  community  interest  that  is 
served  by  the  goods  its  members  buy,  it  leaves  that  interest  in  the 
care  of  the  members,  each  of  whom  seeks  his  own  interests  and  appro- 
priates to  the  furthering  of  each  of  these  interests  as  much  of  the 
nation's  productive  power  as  the  force  of  his  wants  dictates  and  the 
length  of  his  pocketbook  permits.  As  between  satisfying  the  wants 
of  different  individuals,  society  apportions  its  energies  according  to 
their  purchasing  power,  which  they  may  have  acquired  through 
efficiency  in  the  service  of  other  people's  wants,  through  hard  work  or 
talent  exercised  in  ways  that  do  not  contribute  a  corresponding  net 
addition  to  other  people's  gratifications,  through  good  fortune,  or 
through  a  prudent  choice  of  parents. 

If  Smith  can  persuade  people  that  they  want  just  the  particular 
kind  of  hat  he  knows  how  to  make,  he  appears  at  the  same  time  to  be 
persuading  society  that  it  wants  Smith,  who  is  well  nourished  and  well 
clothed,  to  have  a  victrola,  in  preference  to  giving  the  Jones  family, 
who  are  undernourished,  a  little  more  substantial  food.  Say  that 
he  is  able  to  buy  four  times  as  much  as  Jones,  or  virtually,  to  have 
four  men  like- Jones  working  for  him  all  the  while.  Are  the  four  men 
that  work  for  him  less  efficient  for  that  reason  than  other  men  who 
are  producing  more  necessary  things  for  people  no  richer  than  them- 
selves ?  On  the  basis  of  the  happiness  of  the  greatest  number,  where 
"every  man  counts  as  one,"  the  men  serving  Smith  are  inefficiently 
employed,  unless  the  ultimate  result  of  their  serving  Smith  is  to  get 
people  like  Jones  more  goods  than  they  could  have  if  Smith  did  not 
get  his  extra  share.  Smith's  extra  share  is  his  incentive  to  make  hats 
that  people  will  buy,  and  without  some  such  incentive  he  might  not 
take  the  trouble  to  make  such  good  hats  or  to  bring  them  to  people's 
attention.  We  take  for  granted  that  his  reward  should  consist  in 
having  more  money  than  other  people  to  invest  or  to  spend  for 
necessities,  comforts,  luxuries,  or  vices,  as  he  chooses.  But  should  it  ? 


WAR'S  LESSONS  IN  NATIONAL  EFFICIENCY  569 

Or  should  the  absolute  necessities  be  distributed  equally  to  all,  and 
the  rich  man  get  his  reward  only  in  such  things  as  are  not  pre-empted 
for  this  necessity  budget  ?  Society  has  never  voted  on  this  question; 
it  has  merely  allowed  the  present  system  to  grow  up  of  itself. 

The  nearest  thing  to  a  judgment  we  have  is  the  commonly  accepted 
principle  of  equality  of  opportunity  and  inequality  of  reward,  accord- 
ing to  the  unequal  use  made  of  the  opportunities  in  serviceable  work. 
Strictly  speaking,  this  is  an  impossible  ideal,  since  spending  is  itself 
an  opportunity  to  give  oneself  better  training,  better  food,  more 
safety  from  infection,  a  broader  outlook,  paid  assistants  to  relieve 
him  of  detail  work,  and  all  the  thousand  and  one  things  that  can  make 
a  man  more  effective  as  a  producer.  What  is  really  meant  is,  in 
substance,  that  there  shall  be  enough  equality  of  opportunity  so  that 
some  poor  men  as  well  as  rich  men  can  rise,  and  that  poor  and  rich 
shall  have  an  equal  chance  except  so  far  as  poverty  is  in  and  of  itself 
a  handicap  and  riches  in  most  cases  in  and  of  themselves  an  advantage. 
But  this  exception  is  a  big  one  and  is  growing  bigger  all  the  time,  as 
industrial  success  comes  to  demand  more  training  and  connections 
and  access  to  the  more  expensive  parts  of  society's  accumulations  of 
technical  knowledge.  Left  to  itself,  inequality  of  reward  destroys 
equality  of  opportunity. 

So  much  for  the  division  of  goods  between  different  persons.  In 
the  choice  between  different  goods  for  each  person,  the  persons  choose 
for  themselves,  first,  because  they  are  supposed  to  do  it  on  the  whole 
better  than  others  could  do  it  for  them  and,  second,  because  anything 
else  would  mean  paternalism  or  slavery,  not  freedom,  and  because  it 
is  better  to  learn  by  one's  mistakes  than  to  be  forbidden  to  make  any. 
This  position  is  a  dangerous  half-truth.  It  neglects  the  fact  that 
there  are  really  two  divisions  of  consumption — the  basic  necessities 
and  the  surplus — and  that  it  is  only  for  the  surplus  that  these  argu- 
ments for  free  choice  have  full  force.  It  also  ignores  the  fact  that  the 
individual  does  not  ever  choose  independently.  He  may  not  be 
coerced  but  he  is  always  guided — he  is  always  waiting  and  wanting 
to  be  told  or  persuaded  what  to  want,  or  guided  by  custom  or  example. 
Hence  the  only  question  is,  What  sort  of  guidance  shall  dominate — 
custom,  or  disinterested  instruction,  or  persuasion  from  those  who 
have  an  interest  in  selling  him  things  ? 

Guidance  of  consumers  is  carried  on  as  a  matter  of  private  business 
by  thousands  of  agencies,  each  working  against  the  others,  and 
producing  a  net  result  far  less  valuable  than  the  sum  total  of  their 


570  ECONOMICS  OF-  WAR 

individual  efforts  would  lead  one  to  expect.  The  consumer  is  exposed 
to  much  repetition  of  mutually  inhibitory  stimuli,  and  in  place  of 
information  he  can  trust,  he  must  do  the  best  he  can  with  the  light 
he  can  get  from  salesmen  and  advertizers,  whose  statements  he  is 
generally  too  canny  to  believe  fully,  even  though  they  may  in  some 
cases  be  true.  Thus  the  consumer,  ostensibly  the  ultimate  directing 
force  in  our  economy,  being  himself  somewhat  imperfectly  directed 
at  the  expense  of  a  surprisingly  large  percentage  of  our  total  working 
energy,  exercises  his  guiding  influence  on  production  through  his 
spending  power. 

This  is  probably  the  best  way  of  handling  the  surplus,  barring 
avoidable  wastes  in  salesmanship,  because  the  surplus  is  a  matter  of 
taste  or  of  having  a  good  time,  and  these  are,  fortunately,  not  stand- 
ardized commodities.  No  public  bureau  can  lay  down  the  canons 
for  all.  Moreover,  the  surplus  is  always  expanding,  so  that  we  are 
constantly  devising  new  enjoyments,  wrestling  with  the  incidental 
misfits  and  unforeseen  drawbacks  and  damages  that  go  along  with 
these  untried  enjoyments;  it  makes  the  whole  process  of  assimi- 
lating them  a  groping,  unstandardized  welter  of  conflicting  tastes, 
uninformed  experiments,  and  all  are  stages  of  the  social  process  of 
trial  and  error. 

The  necessities  are  a  different  story.  Here  we  are  dealing  with 
elemental  needs  which  all  share  in  common  and  of  which  science  can 
speak  objectively.  "Necessities"  are,  first  of  all,  those  things  that 
are  necessary  to  physical  health,  which  is  a  perfectly  definite  thing, 
definable  by  the  doctor  in  terms  of  the  absence  of  any  "abnormal"  or 
"pathological"  condition.  Psychological  well-being  and  willingness 
to  serve  also  come  into  the  calculation,  and  a  certain  amount  of 
"good  time"  may  be  necessary  on  that  score;  but  the  individual  is  no 
longer,  as  before  he  seems  to  have  been,  the  final  judge  of  how  much 
of  other  values  he  shall  sacrifice  to  the  good  time  he  wants  to  have  on 
any  particular  Saturday  afternoon.  Thus  in  any  sudden  need  for 
retrenchment,  in  war  or  peace,  our  attention  is  necessarily  focused  on 
things  which  are  matters  of  objective  standards  rather  than  subjective 
preferences.  Calories  and  protein  units  are  objective  tests  of  food, 
and  its  suitability  to  the  diet  of  various  kinds  of  invalids  and  semi- 
invalids  is  a  matter  of  objective  tests.  But  taste  is  not,  and  price  is 
not  so  far  as  price  reflects  taste.  The  necessity-economy  is  stand- 
ardizable  while  the  surplus-economy  is  unstandardizable — the  one  is 
an  economy  of  objective  tests,  the  other  an  economy  of  subjective 


WAR'S  LESSONS  IN  NATIONAL  EFFICIENCY  571 

S. 

preferences.  And  wherever  there  is  an  objective  standard  which  the 
trained  scientist  can  apply,  the  scientist  can  prescribe  for  the  man  in 
the  street  better  than  the  man  in  the  street  can  prescribe  for  himself. 
But  does  this  justify  enslaving  the  individual  to  the  dictates  of 
the  scientist  ?  In  most  cases  it  need  not  go  so  far  as  that,  for  no  sane 
person  wants  to  be  unhealthy,  he  merely  needs  to  be  educated.  If 
the  funds  devoted  to  display  advertising  were  devoted  to  a  dis- 
interested campaign  of  information  and  education  it  might  well 
produce  a  revolution  in  standards  of  consumption.  Some  control  can 
be  exercised  without  the  victim's  knowledge;  for  example,  how  many 
Americans  know  that  they  are  being  compelled  to  buy  day-old  bread 
by  order  of  government?  Absolute  prohibition  need  never  be 
employed  in  enough  cases  to  make  an  appreciable  percentage  reduction 
in  the  number  of  choices  the  individual  is  free  to  make  for  himself. 

B.  The  theory  of  competitive  production. — So  much  for  society's 
wants;    how  about  the  process  of  getting  them  satisfied?    This  is 
done  chiefly  by  means  of  private  business  enterprise,  in  which  every 
man  works  for  his  own  interest  as  hard  as  he  can,  lawfully  and  honor- 
ably.   The  general  idea  of  our  law  is  to  prevent  anyone  from  injuring 
anyone  else  (so  far  as  this  can  be  prevented  by  law),  and  to  leave  him 
free  to  further  his  own  interest  in  any  other  way  he  chooses.     Honor 
and  morality  enforce  this  same  obligation  in  many  delicate  relation- 
ships which  law  is  too  clumsy  to  reach,  and  are  a  vitally  necessary 
part  of  our  system  of  social  control.     I  cannot  enslave  my  fellow-men 
and  make  them  work  for  me,  nor  take  their  goods  without  their 
consent.     The  only  way  I  can  get  them  to  work  for  me  is  to  work  for 
them  in  return,  and  I  can  get  their  goods  by  giving  them  my  own  in 
free  exchange.     If  others  are  free  to  do  the  same  they  will  compete 
with  me,  and  I  cannot  get  people  to  take  my  work  or  my  goods  unless 
I  give  them  what  they  want  more  effectually  than  my  competitors. 
If  I  have  no  competitors  I  must  be  made  to  deal  on  as  nearly  as 
possible  the  same  terms  I  would  have  to  make  if  I  had  competition 
to  meet.    This,  in  broad  outline,  is  the  theory  of  private  enterprise, 
and  the  structure  that  is  built  on  it  is,  on  the  whole,  very  efficient  and 
serviceable. 

C.  How  it  works  out. — There  are,  however,  many  weak  spots.    The 
theory  assumes  that  every  transaction  stands  by  itself.     If  any  of 
them  have  an  effect  on  third  parties  outside  the  bargain,  that  is  some- 
thing the  theory  does  not  allow  for.     And,  in  fact,  all  transactions 
have  such  effects,  either  good,  or  bad,  or  mixed.     If  they  are  good,  we 


572  ECONOMICS  OF  WAR 

have  unpaid  services,  and  if  they  are  bad,  we  have  unpaid  damages. 
These  latter,  of  course,  are  just  the  sort  of  thing  the  law  tries  to  prevent 
or  to  reduce  to  a  minimum.  Most  of  the  failings  of  individualism 
may  be  classed  under  one  or  the  other  of  these  two  heads. 

It  is  easy  to  see  how  unpaid  damages  reduce  the  efficiency  of 
production,  but  unpaid  services  are  also  a  weakness,  though  in  a 
different  way.  If  the  services  get  performed,  that  is  so  much  clear 
gain,  but  since  they  are  unpaid,  there  is  no  assurance  that  they  will 
be  performed  on  the  scale  that  would  pay  for  the  community  as  a 
whole,  unless  the  community  as  a  whole  takes  charge  and  pays  for 
them  as  a  community.  Where  things  have  to  be  done  for  the  benefit 
of  the  whole  community  if  they  are  done  at  all,  anyone  who  volun- 
tarily pays  to  get  them  done  must  be  extremely  public-spirited,  for  he 
knows  that  he  will  do  all  the  paying  and  everyone  else  will  benefit,  and 
he  is  not  likely  to  do  it  at  all  except  unselfishly  and  temporarily,  as 
a  way  of  convincing  the  public  that  here  is  a  service  well  worth  what 
it  costs  which  should  be  publicly  rendered  and  publicly  paid  for. 
This  is  why  we  need  a  public-health  service  to  stamp  out  contagion. 

Again,  much  of  the  benefit  of  increased  knowledge  can  never  be 
made  a  source  of  profit  by  the  person  who  made  the  discovery.  If 
knowledge  cannot  be  surrounded  by  a  private-property  fence  of  some 
sort,  such  as  the  patent  system,  the  private  inducement  to  produce 
it  is  weak;  and  if  it  is  so  fenced  in,  we  are  prevented  from  utilizing 
it  to  anything  like  its  full  capacity  after  it  has  been  produced.  Under 
the  guidance  of  price,  then,  with  its  blind  spots  where  services  remain 
uncompensated,  and  its  somewhat  fickle  way  of  rating  human  beings, 
the  productive  process  goes  on  and  productive  sacrifices  are  incurred. 

Is  the  process  of  production  always  worth  what  it  costs  to  the 
community  or  to  those  who  engage  in  it?  What  of  the  case  of  a 
family  which  is  going  to  pieces  because  the  father  is  disabled  for  work 
and  the  mother  is  undermining  her  health  and  neglecting  the  upbring- 
ing of  her  children,  working  in  a  vain  effort  to  make  both  ends  meet  ? 
The  cost  of  her  work  is  disastrously  great.  If  she  did  not  work, 
perhaps  the  disaster  would  be  even  greater,  but  what  kind  of  surplus 
can  be  made  out  of  this  bookkeeping?  The  family  has  to  choose 
between  two  alternatives,  either  one  disastrous.  Is  society  limited 
to  these  two  alternatives  in  its  dealing  with  the  problem  ?  Not  at  all. 
Its  cost  accounting  has  a  different  base  line  from  that  of  the  individual, 
for  it  can,  if  it  chooses,  save  the  family  without  forcing  the  mother 
out  of  the  home  and  ruining  her  health.  Here  individual  profit  would 
permit  a  social  loss. 


WAR'S  LESSONS  IN  NATIONAL  EFFICIENCY  573 

Some  costs  are  more  obviously  unpaid.  In  the  last  few  decades 
especially  we  have  been  forced  to  a  realizing  sense  that  business 
safety  depends  not  merely  on  one's  own  prudence  and  the  soundness 
of  his  policy  but  on  that  of  his  neighbor  as  well.  A  collapse  of  business 
confidence  affects  all  alike,  regardless  of  who  is  responsible.  A  spirit 
of  revolt  among  workmen  starts  disturbances  which  reach  out  and 
involve  the  most  well-meaning  and  conciliatory  of  employers.  If  my 
customers  are  taken  away  from  me  by  a  catchy  advertising  trick,  I 
have  no  legal  grievance,  but  I  have  incurred  a  cost  without  my  own 
consent  and  the  gain  has  all  gone  to  others.  As  a  result  of  these  and 
other  more  tangible  forms  of  unpaid  damages,  many  businesses  are 
profitable  which  would  not  be  profitable  if  they  paid  all  their  costs, 
and  the  process  of  competitive  selection  stamps  as  ''efficient"  in 
the  business  sense  many  forms  of  parasitism  which  mean  national 
inefficiency. 

Why  do  we  tolerate  the  system  which  this  impressionistic  and  one- 
sided sketch  characterizes  ?  Is  it  merely  through  inertia  ?  If  so,  we 
are  at  present  going  through  the  greatest  inertia-overcoming  experi- 
ence of  modern  times.  Inertia  is  not  by  any  means  the  only  reason. 
The  measure  of  the  market  has  prevailed  in  spite  of  being  an  imperfect 
standard  of  social  value  and  social  cost  largely  because,  imperfect 
as  it  is,  we  have  had  no  definite  substitute.  Society  has  not  known 
what  it  wanted  and  so  has  taken  the  market's  word  as  the  measure  of 
J:he  worth  of  different  gratifications  and  of  the  efficiency  of  different 
ways  of  producing  them.  Moreover,  people  are  justly  afraid  that  if 
public  control  kills  private  enterprise  the  result  will  be  stagnation; 
and  it  has  not  wanted  a  stereotyped  economy,  but  rather  one  moving 
on  to  things  whose  nature  no  one  could  predict.  Hence  changes  move 
slowly,  until  a  crisis  comes  which  compels  us  to  throw  caution  to  the 
winds  under  pressure  of  sheer  necessity,  and  seek  whatever  immediate 
gains  in  national  efficiency  are  within  our  reach,  regardless  of  the 
ultimate  consequences  to  our  individualistic  habits  and  institutions. 

III.      THE   NATIONAL  ECONOMY   OF   WAR 

A.  The  new  national  objective. — The  economy  of  modern  war  is 
radically  different  from  the  previous  economy  of  peaceful  individual- 
ism. Its  whole  objective  is  shifted;  the  nation  has  a  dominant  national 
purpose  and  knows  what  that  purpose  is.  It  is  a  necessity-economy, 
setting  no  national  worth  on  mere  personal  enjoyment  for  enjoy- 
ment's sake.  In  time  of  peace  things  are  worth  what  they  are  worth 
to  individuals;  in  a  state  of  war  the  individual  himself  is  worth  only 


574  ECONOMICS  OF  WAR 

what  he  is  worth  to  the  state.  In  time  of  peace,  enlarged  con- 
sumption, even  for  the  rich,  is  a  contribution  to  the  end  for  which 
society  is  working.  It  is  a  bit  of  social  success.  In  time  of  war 
private  consumption  is,  for  the  state,  a  mere  means  to  an  end,  a 
necessary  diversion  of  productive  power  from  munition-making 
incident  to  keeping  the  people  efficient  and  loyal.  Any  extra  con- 
sumption is  a  subtraction  from  the  end  for  which  society  is  working — 
it  is  a  bit  of  social  failure. 

The  surplus  economy  characteristic  of  peace  is  one  which  must 
necessarily  be  guided  by  individuals,  since  no  one  else  can  tell  what 
makes  for  the  individual's  subjective  enjoyment.  But  the  necessity- 
economy  of  war  can  be  better  guided  by  some  authority  capable  of 
using  the  resources  of  science  to  determine  needs  objectively  and 
organize  production  and  consumption  accordingly.  So  Mr.  Hoover 
standardizes  our  diet,  and  others  have  made  some  slight  beginnings  at 
standardizing  our  clothes  and  limiting  production  of  many  "non- 
essentials."  In  Germany  all  foods  are  rationed  out,  only  two  suits  of 
clothes  are  allowed,  and  the  government  seems  to  care  less  than 
nothing  for  the  consumer's  supposed  bent  toward  organizing  his 
purchases  on  a  basis  of  maximum  psychic  income. 

B.  The  attainment  of  the  objective. — The  efficiency  that  is  sought  is, 
first,  efficiency  on  a  national  scale,  and  hence  calls  for  an  attack  on  the 
shortcomings  of  competition  that  have  already  been  explained — the 
wastes,  duplications,  losses  due  to  unpaid  costs,  and  gaps  where 
services  are  not  privately  compensated.  In  the  second  place,  the 
critical  need  is  maximum  efficiency  for  a  limited  time — the  greatest 
immediate  gains.  In  the  third  place,  what  is  needed  is  quick  mobiliza- 
tion, a  task  which  includes  all  industries  and  demands  central  author- 
ity. And  in  the  fourth  place  the  war  itself  furnishes  an  incentive  to 
efficiency  which  has  such  compelling  power  over  the  responsible 
classes  that,  for  the  time  being,  we  can  afford  to  discount  the  fact  that 
ordinary  incentives  to  effort  are  weaker  under  public  administration 
or  control  than  under  private  enterprise.  Let  us  see  in  more  detail 
what  this  particular  type  of  efficiency  calls  for. 

IV.      THE   SOCIALIZATION   OF   KNOWLEDGE 

As  the  war  rolls  over  us,  and  wakes  us  to  the  need  of  doing  the 
impossible,  we  suddenly  become  aware  that  "we  have  resources  of 
knowledge  that  are  comparatively  little  utilized.  The  consumer 
for  the  most  part  orders  his  diet  in  sublime  ignorance  of  true  food 


WAR'S  LESSONS  IN  NATIONAL  EFFICIENCY  575 

values,  and  wages  an  unequal  contest  with  the  swiftly  changing  arts 
of  adulteration  and  imitation.  Nowadays  his  guidance  requires 
mobilized  knowledge  rather  than  unmobilized  habit,  and  knowledge 
of  a  detailed  scientific  character  about  a  multitude  of  things  such  as 
only  specialized  researches  can  supply.  The  consumer  has  not  hired 
these  things  done  for  him,  partly  because  he  did  not  know  how  badly 
he  needed  them,  and  partly  for  the  reason  that  knowledge  is  not 
appropriable  like  the  ordinary  commodity  and  its  production  is  largely 
an  unpaid  service.  The  present  wave  of  public  education  into  the 
mysteries  of  proteins  and  calories,  then,  is  but  a  phase  of  an  inevitable 
development,  due  to  science  and  scientific  methods  of  production. 

Producers  as  well  as  consumers  suffer  from  imperfect  utilization 
of  the  existing  stock  of  knowledge  of  their  trade.  The  "state  of  the 
arts,"  apart  from  patents  and  secret  processes,  is  properly  a  national 
asset,  but  there  is  no  comprehensive  machinery  for  organizing  it  on  a 
national  scale.  The  standardization  of  methods,  combining  the  best 
that  is  found  anywhere,  can  not  only  raise  the  average  efficiency  of 
industry;  it  can  even  show  the  most  efficient  how  to  improve  still 
farther  by  strengthening  his  weak  points.  The  present  channels  for 
interchange  of  knowledge  are  more  efficient  between  producers  than 
between  consumers,  and  complete  pooling  might  injure  the  incentive 
to  private  inventiveness  in  the  future.  One  of  the  most  promising 
fields  for  standardization  is  that  of  labor  policies,  for  here  the  rivalries 
between  employers  do  not  come  into  the  foreground  as  they  do  in  the 
case  of  mechanical  devices  or  chemical  formulae  and  they  feel  that 
there  is  little  to  lose  by  the  pooling  of  labor  policies.  Moreover,  the 
gain  an  employer  can  make  from  successful  treatment  of  labor  has  not, 
apparently,  been  an  effective  enough  incentive  to  get  the  labor  problem 
solved  for  the  nations.  What  is  needed  here  is  a  discriminating 
policy.  For  the  immediate  emergency  any  amount  of  pooling  that 
can  be  secured  in  any  field  will  be  clear  gain,  and  will  have  no  bad 
effects  on  future  progress.  After  the  war,  if  the  socializing  of  trade 
knowledge  is  to  be  continued  in  any  industries,  there  will  be  need  of  a 
more  formal  system,  fortified  with  more  substantial  inducements. 
Meanwhile  the  experience  of  the  war,  if  properly  utilized,  will  be 
furnishing  valuable  testimony  as  to  where  the  greatest  gains  are  to 
be  had. 

As  these  words  were  being  written  the  morning  paper  arrived, 
with  the  announcement  of  a  new  American  aeroplane  engine,  as  good 
as  the  best  foreign  engines,  and  combining  many  of  their  best  features, 


576  ECONOMICS  OF  WAR 

but  capable  of  being  turned  out  in  large  numbers  by  American 
standardized  machine-process  methods,  rather  than  with  much  hand 
labor  of  many  artisan-technicians,  as  abroad.  This  achievement1 
seems  to  have  been  made  possible  chiefly  by  the  pooling  of  engineer- 
ing talent  and  of  different  designs  and  trade  secrets,  under  an  incentive 
strong  enough  to  spur  men  to  work  twenty-four  hours  a  day.  There 
is  a  prospect  of  continued  progress,  also,  but  chiefly  under  the  spur 
of  the  most  active  of  all  forms  of  competition;  namely,  the  competition 
at  the  fighting  front. 

Such  things  prove  that  there  are  unused  possibilities  for  immediate 
advancement  in  private  industries  where  patents  or  secret  processes 
are  held,  or  where  local  producers  are  out  of  touch  with  each  other's 
achievements.  They  give  one  a  sense  of  the  sudden  liberation  of 
pent-up  forces  that  reacts  into  sheer  exasperation  at  the  obstacles  of 
ignorance  and  inertia  which  hamper  us,  and  the  walls  of  secrecy  and 
proprietary  prohibition  which  we  erect  at  such  pains  and  guard  .so 
sedulously.  But  they  do  not  prove  that  all  competitive  incentives 
can  be  discarded  and  all  competitive  barriers  broken  down  if  we  wish 
to  keep  on  progressing. 

There  are  certain  fields  where  the  progress  that  is  due  to  the  spur  of 
private  incentive  is  hardly  notable  enough  and  rapid  enough  to  be 
worth  keeping,  if  keeping  it  involves  sacrificing  any  experiment 
which  has  a  prospect  of  showing  really  substantial  results.  These 
backward  fields  are  chiefly  those  in  which  business  is  in  the  hands  of 
many  small  producers,  or  carried  on  in  small  places  with  the  aid  of 
more  handicraft  skill  than  of  mechanical  devices  and  engineering  or 
scientific  methods.  Very  small  producers  cannot  afford  to  experi- 
ment extensively,  nor  to  study  the  methods  of  other  producers  in  the 
attempt  to  standardize  their  own,  and  it  would  be  a  ruinously  wasteful 
duplication  of  work  if  they  were  to  do  so  as  individuals.  Extremely 
small  producers  cannot  even  be  expected  to  be  in  a  position  to  organize 
themselves  effectively  into  associations  to  do  this  sort  of  thing  for 
them,  although  that  is  one  way  in  which  the  dilemma  may  in  many 
cases  be  solved.  Another  solution,  far  less  desirable,  is  the  extinction 
of  small  producers  by  larger  ones  who  can  afford  the  study  and 
investigation  required  to  standardize  efficiency  and  attain  it. 

This  would  amount  to  sacrificing  the  small  producers,  not  because 
they  cannot  be  as  useful,  or  perhaps  more  useful,  than  large  ones  in 

1  Later  developments,  however,  show  the  "achievement"  not  yet  accom- 
plished. 


WAR'S  LESSONS  IN  NATIONAL  EFFICIENCY  577 

the  actual  work  of  production,  but  because  they  cannot  organize  and 
standardize  their  work  as  well  as  carry  it  on.  But  if  the  standardizing 
can  be  done  for  them  by  some  large  agency,  they  may  prove,  on 
account  of  their  more  direct  contact  with  the  details  of  the  business 
and  on  account  of  the  more  intimate  relation  between  owner,  work- 
man, and  consumer,  to  be  better  adapted  to  handling  the  industrial 
problems  which  hinge  on  these  unstandardized  and  very  human 
relations.  For  example,  if  systems  of  accounting,  stock  keeping, 
organization  of  space,  and  delivery  can  be  standardized  for  the  various 
kinds  of  retailers  by  studies  made  on  a  large  scale,  and  market  informa- 
tion secured  by  some  large-scale  agency,  the  small  retailer  will  have 
presented  to  him  the  means  of  equaling  the  advantages  which  the 
chain  store  now  has  over  him  in  these  matters,  and  he  need  not  spend 
his  time  and  energy  on  the  kind  of  problem  at  which  he  is  necessarily 
working  at  a  very  heavy  disadvantage,  but  can  spend  it  all  on  the 
sort  of  problem  which  no  standardized  system  can  solve  for  him, 
studying  his  customers'  tastes,  and  adapting  his  policy  to  the  pecu- 
liarities of  his  local  market. 

If  local  producers  are  so  far  out  of  touch  with  each  other  that  they 
make  no  attempt  to  imitate  each  other's  strong  points,  but  each 
continues  in  his  own  groove,  satisfied  with  the  methods  he  has  devel- 
oped himself  and  with  his  achievements  in  those  parts  of  the  process 
in  which  he  himself  may  be  superior,  this  fact  itself  is  evidence  that 
the  competitive  stimulus  is  not  strong  enough  to  do  the  work  we  rely 
on  it  to  do.  Producers  who  are  in  no  sharper  competition  than  this 
are  not  receiving  the  kind  of  competitive  stimulus  that  is  likely  to 
lead  to  rapid  industrial  progress.  In  such  a  case  one  need  not  be 
afraid  of  the  weakening  of  competitive  stimulus  which  would  come 
from  pooling  the  knowledge  of  the  trade,  for  there  is  so  little  stimulus 
to  lose.  There  would  be  no  grave  danger  even  in  going  to  the  length 
of  standardizing  the  process  and  trusting  to  co-operative  enterprise, 
or  the  "instinct  of  workmanship,"  or  even  to  governmental  experi- 
mentation, for  the  means  of  future  progress. 

Beside  those  cases  in  which  the  private  incentive  system  is  notably 
weak,  there  are  cases  in  which  a  co-operative  or  public  agency  is 
equipped  to  do  the  work  notably  well.  Where  the  chief  thing  needed 
is  accuracy,  and  the  most  important  industrial  quality  is  disinterested- 
ness, there  is  little  need  of  the  stimuli  of  ordinary  industrial  competi- 
tion, and  they  may,  indeed,  be  fatal  to  the  peculiar  reliability  of  result 
that  is  wanted.  In  the  case  of  employment  agencies,  for  example,  we 


578  ECONOMICS  OF  WAR 

are  rapidly  finding  out  that  the  disinterestedness  of  a  public  agency 
is  a  far  more  essential  quality  than  any  of  the  good  points  which 
private  enterprise  may  have  in  this  field.  This  is  in  essence  simply 
another  form  of  the  socialization  of  economic  knowledge.  The 
diffusing  of  information  about  prices  is  an  important  service  which 
may  in  some  cases  be  well  rendered  by  private  enterprises,  but  is  by 
no  means  certain  to  be  rendered  at  all  unless  some  public  agency  takes 
the  responsibility. 

One  clear  case  of  this  is  the  work  of  testing  whether  things  con- 
form to  standards  where  standards  have  already  been  established. 
In  other  words,  it  is  the  sort  of  work  which  the  present  Federal  Bureau 
of  Standards  is  doing,  with  an  ever-widening  scope.  The  work  of 
establishing  standards  themselves,  based  on  the  best  existing  practice, 
or  on  the  combination  of  the  best  single  elements  to  be  found  in  exist- 
ing practice,  into  a  new  standard  better  than  anything  actually  found ; 
such  work  as  this,  in  well-selected  fields,  is  clearly  a  proper  function 
of  government  in  the  present  state  of  industrial  and  scientific  develop- 
ment. But  how  about  the  work  of  breaking  new  ground  and  making 
new  discoveries?  Is  not  government  proverbially  cautious  and 
unenterprising  in  its  conduct  of  productive  enterprises  ? 

Yes,  public  enterprise  is  cautious,  and  has  often  proved  unenter- 
prising, but  nevertheless  the  conclusion  which  seems  so  obvious  does 
not  necessarily  follow,  namely,  that  it  is  useless  to  look  to  government 
for  any  industrial  innovation.  When  a  government  official  is  given 
a  task  it  is  not  the  part  of  caution  to  do  nothing  at  all.  But  it  is  the 
part  of  caution  to  see  to  it  that  the  task  is  accomplished  with  as  few 
risks  as  possible  of  doing  anything  which  may  prove  to  be  an  expensive 
mistake.  If  the  task  is  the  running  of  an  industry  or  the  rendering 
of  a  definite  material  service,  the  public  manager  will  stick  to  estab- 
lished methods  if  they  work  tolerably  well,  and  what  experiment- 
ing he  does  will  involve  the  risking  of  the  tolerable  result  already 
obtained,  or  at  least  will  involve  an  expense  which  will  be  a  burden 
on  his  financial  showing,  and  so  to  that  extent  a  risking  of  his 
present  tolerable  result.  And  experiments  are  extremely  likely  to  go 
wrong. 

But  suppose  the  business  with  which  this  public  official  is  charged 
is  that  solely  of  experimenting?  He  has  no  other  service  whose 
results  may  be  endangered  by  the  failure  of  any  given  experiment  to 
materialize.  What  will  he  do  ?  He  will  do  his  job,  and  try  to  show 
results — a  thing  he  can  do  only  by  continued  achievement.  If  he  is 


WAR'S  LESSONS  IN  NATIONAL  EFFICIENCY  579 

working  in  competition  with  private  laboratories,  he  is  under  the 
genuine  competitive  stimulus,  with  all  that  this  implies. 

V.      THE   SOCIAL  MINIMUM 

In  one  way  or  another  the  principle  by  which  purchasing  power 
carries  with  it  power  over  all  the  earth's  resources,  even  to  the 
shutting  out  of  some  from  the  material  means  of  opportunities  to 
become  efficient  is  limited  or  supplemented  by  another  principle. 
Some  things  are  so  important  that  society  cannot  afford  to  leave  them 
at  the  mercy  of  this  rule  of  distribution,  but  must  see  to  it  that  they 
are  distributed  under  a  system  in  which  every  one  counts  as  one.  The 
minimum  that  is  thus  furnished  is,  in  its  most  important  aspect,  a 
minimum  of  opportunity — opportunity  to  maintain  health,  to  acquire 
knowledge,  to  know  beauty,  and  to  mobilize  one's  abilities  to  the  best 
advantage. 

There  are  two  ways  in  which  the  proportion  of  society's  whole 
resources  that  goes  to  the  furnishing  of  this  minimum,  may  become 
greater,  and  the  field  of  individualistic  distribution  be  correspondingly 
diminished.  One  is  by  some  great  disaster.  It  is  only  when  things 
go  on  in  such  a  way  that  the  unaided  individual  has  at  least  a  fair 
chance  to  be  able  to  take  care  of  himself  that  the  free-exchange  system 
can  become  dominant  at  all.  A  fire,  an  earthquake,  or  any  such 
catastrophe  seems  automatically  to  put  the  other  rule  in  force,  and 
we  fall  without  question  into  the  system  of  distributing  food  and 
blankets  to  rich  and  poor  alike  and  making  every  refugee  wait  his  or 
her  turn  for  railroad  accommodation,  regardless  of  what  fabulous 
prices  some  may  be  willing  to  offer  for  tickets. 

But  there  is  another  way  in  which  the  scope  of  this  principle  is 
enlarged — by  a  force  that  operates  more  quietly,  more  constantly,  and 
ail-pervasively.  In  a  word,  the  more  we  find  out  about  life  and  how  to 
make  things  useful,  the  more  things  do  we  find  to  be  necessary  to  really 
efficient  living  and  working.  Material  conditions  which  used  to  be 
regarded  as  matters  of  taste  are  found  to  be  possible  sources  of  disease, 
physical  or  mental.  In  a  sense,  since  everything  in  the  environment 
has  its  effect  on  man's  development,  perfect  equality  of  opportunity 
can  never  be  had  short  of  absolute  equality  in  all  possessions  and  all 
services  received.  But  be  that  as  it  may,  what  we  have  at  present 
is  a  compromise  system,  so  that  the  power  of  the  rich  to  buy  more 
than  others  is  by  no  means  as  great  as  if  the  whole  of  a  man's  gratifica- 
tion were  left  for  him  to  buy  for  himself  in  the  market. 


580  ECONOMICS  OF  WAR 

Economic  inequality  is  being  attacked  in  two  ways,  which  we  may 
call  extensive  and  intensive.  Its  extent  is  attacked  by  progressive 
taxation,  while  the  range  within  which  superior  purchasing  power 
gives  superior  power  to  satisfy  wants  is  limited  by  the  policy  of  the 
social  minimum.  From  what  has  been  said  it  may  be  inferred  that 
the  principle  underlying  the  rationing  of  a  population  through  bread 
tickets  or  similar  devices  is  no  new  thing,  and  that  as  long  as  the  world 
feels  the  pinch  of  shortage  in  foodstuffs  it  will  continue  some  form  of 
public  control  so  that  waste  may  be  prevented  and  no  class  consume  so 
much  as  to  involve  the  serious  undernourishment  of  others.  The 
methods  of  securing  the  social  minimum  are  various.  Those  who 
cannot  afford  it  may  have  it  supplied  to  them  direct  by  some  public 
agency,  and  the  rich  may  be  left  free  to  spend  their  incomes  as  they 
will,  subject  only  to  the  competition  of  the  government  itself  in  buying 
the  things  which  it  distributes.  Or,  without  going  as  far  as  this,  the 
price  may  be  put  artificially  low  and  the  inevitable  excess-demand  be 
kept  within  bounds  by  limiting  the  amount  which  any  one  person  is 
allowed  to  buy.  This  is  the  familiar  "bread-ticket"  policy,  and  it 
involves  an  amount  of  supervision  which  has  not  hitherto  been  found 
possible  in  ordinary  times,  while  even  in  time  of  war  the  growers  of 
foodstuffs  themselves  are  to  a  considerable  extent  immune.  Another 
method  which  has  the  effect  of  limiting  the  power  of  money  in  private 
hands  to  turn  the  productive  resources  of  the  nation  away  from  the 
production  of  necessities  into  the  making  of  luxuries  is  the  method 
of  controlling  production  directly  and  of  giving  priority  to  those 
demands  which  represent  the  most  urgent  social  necessities. 

It  is  impossible  now  to  predict  how  much  will  survive  of  the  war 
policy  directed  to  this  end.  The  more  extreme  forms  of  interference 
with  personal  liberty  certainly  will  not  at  once  become  permanent 
parts  of  our  life.  On  the  other  hand,  those  forms  of  direct  public 
service  which  help  to  secure  the  social  minimum  without  obvious 
interference  with  personal  liberty  will,  beyond  a  doubt,  be  much 
stimulated.  Of  control  through  the  producers  themselves,  there 
may  well  remain  some  system  by  which  trade  associations  are  recog- 
nized as  performing  a  number  of  quasi-public  functions  in  voluntary 
co-operation  with  government  bureaus  in  policies  looking  not  merely 
to  the  elimination  of  waste  in  production  itself  but  toward  the  check- 
ing of  trade  practices  which  make  for  waste  on  the  part  of  the  con- 
sumer, and  the  stimulating  of  trade  practices  which  tend  to  urge  the 
consumer  in  the  direction  of  economy. 


WAR'S  LESSONS  IN  NATIONAL  EFFICIENCY  581 

VI.      PRIVATE   SALESMANSHIP  VERSUS   SOCIAL   GUIDANCE 

The  consumer  certainly  needs  the  service  which  at  present  he  gets 
through  the  channels  of  advertising,  namely,  the  guidance  of  purchase 
under  a  system  in  which  purchase  is  the  guide  of  all  economic  effort. 
He  needs  to  have  goods  and  services  brought  to  his  attention  in  an 
enlightening  way  and  to  be  informed  of  their  good  and  bad  points  so 
that  he  may  spend  his  money  wisely.  But  when  one  stops  to  think 
of  the  various  things  the  government  is  now  doing,  one  cannot  fail 
to  realize  that  it  is  rapidly  furnishing  a  set  of  agencies  for  economic 
guidance — that  is,  for  doing  just  the  thing  that  advertising  does — on 
a  wholly  different  basis  and  much  more  economically.  Its  campaign 
for  the  enlistment  of  housewives  in  an  intelligent  use  of  food,  its  testing 
bureaus,  its  systems  of  priority,  of  price  fixing,  and  ultimately, 
perhaps,  of  general  control  of  consumption,  are  virtually  paralleling 
the  social  service  of  salesmanship  in  this  field  with  a  service  which  is 
not  exactly  its  equivalent,  but  is  rather  an  improvement,  better 
adapted  to  war-time  conditions.  Thus  the  value  of  private  salesman- 
ship is  narrowed. 

Perhaps  advertising  will  shrink  automatically  as  businesses  feel 
the  pinch  of  diminished  demand  and  increased  cost  and  find  their 
market,  under  the  stress  of  war  conditions,  suddenly  becoming 
unresponsive  to  the  ordinary  tactics  of  salesmanship.  Or  perhaps 
some  less  far-sighted  producers  may,  for  a  time,  spend  more  than  usual 
on  advertising  in  order  to  strengthen  the  dwindling  demand,  utilize 
the  unused  capacity  of  their  plants,  and  come  as  near  as  possible  to 
preserving  "business  as  usual."  Ought  we,  in  a  society  forced  to 
sharp  economy,  to  maintain  private  advertising  and  salesmanship 
on  the  ordinary  peace-time  scale  to  which  America  is  accustomed, 
while  the  government  is  itself  guiding  industry  directly  and  at  great 
expense  ?  Such  a  duplication  would  seem  to  be  little  short  of  criminal 
wastefulness. 

This  state  of  things  will  not  be  permanent,  but  it  should  have  some 
effects  of  permanent  value.  The  government  can  exercise  economic 
guidance  at  present  because  it  does  not  have  to  ask  first  "does  the 
consumer  want  this  service  rendered  ?  "  but  can  confine  itself  chiefly  to 
the  question  "  will  this  commodity  render  the  required  service  better 
than  any  other?"  When  more  normal  times  return  we  can  afford 
again  to  pay  more  attention  to  the  question  what  kind  of  services  the 
consumer  wants,  and  unstandardized  methods  of  advertising  may 
again  become  appropriate.  But  meanwhile,  there  will  have  been  a 


582  ECONOMICS  OF  WAR 

wholesome  object-lesson  in  the  value  of  disinterested  information  such 
as  comes  through  public  or  co-operative  channels,  and  if  it  shall 
happen  that  the  work  of  advertising  and  salesmanship  of  the  private 
sort  is  cut  down  during  the  war  to  a  fraction  of  its  present  amount, 
we  shall  have  had  another  wholesome  object-lesson  in  the  discovery 
that  nothing  of  any  substantial  value  to  consumers  or  to  producers 
in  general  has  been  lost.  The  result  may  well  be  a  determination, 
possibly  exercised  through  the  channels  of  trade  associations  in 
co-operation  with  the  government,  or  possibly  in  other  ways,  to 
practice  in  the  future  a  mutual  limitation  of  armament  in  advertising 
warfare  which  will  lessen  the  waste  without  sacrificing  any  valuable 
services  that  are  now  being  rendered. 

VII.      CONTROL  OF   THE   REWARDS   OF   INDUSTRY 

Free  contract  as  a  method  of  mobilizing  industry  is  best  adapted 
to  certain  conditions  which  are,  for  the  most  part,  fairly  well  realized 
in  times  of  peace.  To  discover  in  what  direction  the  social  will  is 
going  to  move  industrial  effort  we  wait  for  the  social  will  to  express 
itself  through  demand  in  the  market.  The  changes  that  are  con- 
tinually going  on  are  not  so  large  as  to  be  revolutionary,  at  least  for 
large  industries.  Under  such  conditions,  the  individual  has,  in  the 
first  place,  a  fair  chance  to  take  care  of  himself  in  spite  of  the  shifting 
environment,  so  that  those  who  come  to  grief  are  a  minority,  though 
even  so  they  are  a  serious  and  growing  sickness  in  our  industrial  body. 
In  the  second  place,  since  the  changes  are  comparatively  gradual,  they 
do  not  revolutionize  rates  of  wages  or  the  rates  of  return  to  industrial 
capital.  Indeed,  the  traditional  economic  theory  goes  on  the  assump- 
tion that  an  inducement,  however  small,  will  attract  labor  and  capital 
from  any  part  of  the  market  to  any  other  part. 

In  time  of  war  the  movements  called  for  are  so  huge  in  quantity 
and  the  demand  for  speed  so  urgent  that  if  it  were  left  to  the  incen- 
tives of  increased  prices  and  increased  wages  to  bring  about  these 
changes,  it  could  only  be  done  by  a  huge  increase  in  the  returns  to 
labor  and  capital,  with  the  result  that,  as  we  have  already  seen,  the 
increased  purchasing  power  in  the  hands  of  those  who  are  in  the 
growing  industries  is  used  virtually  to  bid  against  society. 

The  bottom  fact  is  that  we  are  faced  with  the  task  of  working  out 
a  collective  system  of  efficiency  rewards  instead  of  a  competitive 
system,  and  to  make  an  intelligent  beginning  we  must  get  rid  of  all 
preconceptions  as  to  whether  the  two  do  or  do  not  necessarily  corre- 


WAR'S  LESSONS  IN  NATIONAL  EFFICIENCY  583 

spond.  The  competitive  system  has  a  strong  tendency  to  make  dif- 
ferences in  pay  equal  to  differences  in  the  exchange  value  of  the 
product.  On  the  other  hand,  while  the  collective  system  requires 
that  superior  work  shall  earn  superior  pay,  there  is  no  exact  equality 
needed  between  the  differences  in  output  and  in  pay,  and  the  price 
measure  is  not  to  be  accepted  as  an  adequate  test  of  superiority  in 
output,  for  reasons  some  of  which  have  already  been  dealt  with. 

The  lowest  wage  paid  is  higher  under  the  collective  than  under 
the  competitive  principle,  for  the  loss  of  efficiency  due  to  low  wages 
does  not  fall  in  its  full  extent  on  the  employer  who  is  responsible; 
it  is  largely  diffused  by  the  shifting  movements  of  the  laboring  popu- 
lation from  employer  to  employer  and  from  industry  to  industry. 

The  piece-wage  of  competitive  efficiency  is  a  progressive  rate, 
since  the  faster  workman  reduced  the  overhead  cost  per  unit  of 
product.  At  flat  piece  rates,  slow  workers  are  relatively  unprofitable. 
The  collective  system,  on  the  other  hand,  may  call  for  a  degressive 
piece  rate  in  order  to  prevent  the  laborer  from  overworking  in  the 
effort  to  earn  the  exaggerated  premium  that  is  offered.  The  present 
system  is  a  combination  of  both  principles,  the  pure  competitive  forces 
being  modified,  partly  by  regulation  and  partly  by  the  increasing 
realization  on  the  part  of  employers  of  the  wastefulness  of  a  large 
"turnover"  of  labor,  which  results  in  their  giving  their  employees 
inducements  to  stay  with  them  and  to  establish  a  relationship  of 
stable  status  with  mutual  responsibilities  in  place  of  the  momentary 
tie  of  an  irresponsible  contract  under  constant  competitive  pressure. 
This  shift  from  contract  to  status  is  hi  the  line  of  progress  for  the 
future,  as  far  ahead  as  the  future  is  worth  while  trying  to  predict  and 
to  plan.  The  war  will  thus  stimulate  a  movement  which  is  destined 
to  be  a  continuing  feature  of  our  economic  life. 

The  difference  between  the  collective  and  the  competitive  supply- 
price  of  efficient  labor  is,  however,  only  one  phase  of  a  broader  one 
involving  all  the  factors  of  industry.  Society  is  getting  a  chance  to 
test  its  power  as  a  monopoly  buyer  of  all  these  factors,  for  if  it  is 
witting  to  exercise  the  necessary  force  it  can  free  itself  from  the  need  of 
paying  capitalists  and  owners  of  natural  resources  the  exchange  value 
which  these  factors  would  have  in  competitive  industry. 

The  principle  of  priority  for  necessities,  applied  by  boards  who 
have  power  enough  to  decide  the  destination  of  all  the  elementary  raw 
materials,  will  soon  reduce  our  supply  of  luxuries,  while  at  the  same 
time  the  control  of  prices  may  prevent  the  producers  from  absorbing 


584  ECONOMICS  OF  WAR 

as  much  of  their  customers'  income  as  before  out  of  a  lessened  volume 
of  business.  If  pleasure  automobiles  and  similar  luxuries  are  not 
to  be  had,  more  money  will  be  saved  at  the  same  rate  of  reward. 
Thus  society  might  be  able  to  get  a  given  supply  of  capital  cheaper 
than  the  "normal"  supply-price  for  that  amount.  In  a  word, 
we  have  the  opportunity  of  testing  to  what  extent  the  powers 
of  society  as  a  monopoly  buyer  exceed  the  powers  of  its  mem- 
bers as  competitive  buyers,  and  to  what  extent  supplies  may 
be  forthcoming  on  better  terms  to  society  than  to  its  separate 
members. 

More  fundamental  still,  we  are  getting  used  to  the  idea  of  two 
social  accountings,  one  of  the  service-value  of  commodities  and 
services,  for  the  purpose  of  directing  materials  and  labor  to  the  most 
important  uses,  and  the  other  of  the  rewards  necessary  to  go  along 
with  this  organization  of  industry  and  to  stimulate  efficient  service. 
Formerly  there  was  but  one  accounting,  for  the  selling  price  which 
was  the  measure  of  productive  worth  also  constituted  the  reward  to 
be  divided  among  the  factors  of  production.  This  is  natural  in  a 
state  where  the  chief  purpose  of  industry  is  one  and  the  same  thing  as 
the  rewards  ("real  incomes")  of  individuals.  And  in  order  to  estab- 
lish the  double  system  of  social  bookkeeping  we  had  to  be  faced  with 
an  emergency  in  which  the  dominant  national  need  is  something 
altogether  different  from  the  enjoyments  of  individuals,  and  a  great 
part  of  our  energy  must  go  in  ways  that  contribute  nothing  directly 
to  individuals'  private  supply  of  consumable  goods.  Priority  orders, 
the  draft  and  exemptions,  shipments  of  food  abroad,  all  are  valuations 
in  terms  of  the  national  need  and  independent  of  money.  Ultimately 
we  hope  to  go  back  to  the  happy  state  in  which  consumable  goods  are 
the  chief  thing  industry  is  run  for,  and  price  is  accepted  (with  fewer 
qualifications  than  now)  as  the  measure  of  their  real  worth;  but  in  the 
meantime  we  may  have  learned  that  the  system  of  wages  under  which 
the  combined  enabling  and  stimulating  effect  will  yield  the  greatest 
possible  product  is  not  the  same  as  the  system  of  wages  that  supply 
and  demand  would  give  to  different  grades  of  workers,  nor  is  it 
necessarily  a  system  of  rewards  in  exact  proportion  to  the  product 
currently  turned  out.  But  to  organize  industry  efficiently,  an 
accounting  based  on  actual  contribution  to  the  product  is  necessary,  or 
else  we  shall  be  putting  things  to  inferior  uses  and  wasting  their  best 
possibilities. 


WAR'S  LESSONS  IN  NATIONAL  EFFICIENCY  585 

Thus  the  war  between  socialism  and  the  "productivity  theory" 
may  take  a  new  turn,  for  a  socialistic  state  must  use  an  accounting 
system  involving  calculations  of  "marginal  productivity"  in  order  to 
organize  production  efficiently;  indeed  any  organization  of  production 
has  such  judgments  implicit  in  it,  though  they  may  be  unconscious  and 
inconsistent  with  each  other.  But  such  a  society  need  not  make 
"marginal  productivity"  also  the  rule  for  distribution  of  rewards. 

VIII.      CONCLUSION 

How  much  of  the  near-socialism  of  this  war  is  temporary  and  how 
much,  if  any,  will  be  permanent  ?  Some  of  the  needs  that  have  given 
rise  to  collectivist  policies  have  been  created  by  the  war,  but  others 
have  been  merely  revealed.  Some  features  of  our  present  policy  are 
due  to  the  fact  that  the  emergency  is  temporary,  but  others  rest  on 
the  permanent  requirements  of  national  efficiency.  Far  from  sacri- 
ficing future  progress  by  our  experiments  in  collectivism,  we  are 
rapidly  putting  ourselves  in  the  way  of  acquiring,  from  a  few  years  of 
war,  more  genuine  experimental  knowledge  of  the  conditions  of  eco- 
nomic efficiency  in  the  large  than  we  could  probably  have  gained  in  as 
many  decades  of  individualism,  business  competition,  and  the  ventures 
in  social-economic  experimentation  that  can  be  argued  through 
legislative  assemblies  in  time  of  peace. 

Indeed,  for  many  of  these  experiments  the  present  war  is  merely 
the  occasion,  and  the  true  determining  cause  is  nothing  less  than  the 
socializing  effect  of  the  growth  of  science  and  of  scientific  standards 
of  consumption  and  methods  of  production.  The  nation  has  decided 
that  there  is  an  efficiency  which,  for  the  service  of  the  nation,  is  greater 
than  the  efficiency  of  unregulated  competition,  and  it  will  not  be 
contented  with  the  old  standards.  It  has  formed  the  habit  of  decid- 
ing what  it  wants,  as  a  nation,  and  demanding  it,  and  the  effect  of  this 
will  not  quickly  evaporate.  The  minimum  of  necessities  will  remain  a 
national  need,  no  matter  how  great  the  surplus  of  the  more  prosperous 
classes. 

In  agriculture  alone  it  will  take  years  of  peaceful  education  and 
demonstration  by  non-competitive  organizations  to  give  us  half  the 
benefit  of  our  unused  resources  of  knowledge.  Researches  in  the 
long-run  effects  of  hours  of  labor  on  output,  and  in  stimulative  systems 
of  apportioning  rewards,  should  have  a  great  range  of  usefulness. 
The  consumer  can  still  benefit  from  disinterested  scientific  information 


586  ECONOMICS  OF  WAR 

in  place  of  advertising  catchwords  or  the  habits  of  his  grandfathers. 
The  industrial  mobilizations  of  peace  will  continue  to  produce,  if 
left  to  themselves,  the  same  sort  of  wreckage  (chiefly  the  degenerate 
"casual  laborer")  which  they  have  produced  in  the  past,  and  which 
the  nation  is  taking  measures  to  prevent  in  the  case  of  army  service 
and  war  work.  The  status  of  labor  in  industry  remains  a  problem 
transcending  the  scope  of  any  business  unit,  and  failure  to  solve  it  may 
yet  shatter  the  industrial  order.  All  in  all,  the  need  of  a  more  coherent 
social  organization  is  probably  not  less  great  in  times  of  nominal 
peace;  it  is  merely  less  obvious  and  less  immediate,  and  it  tends  to  be 
met  by  methods  which,  because  they  are  more  leisurely,  involve  less 
centralization  and  less  compulsion. 

As  to  the  future  form  of  industry,  there  is  little  one  can  predict 
with  certainty.  The  working  connection  between  government  and 
business  must  come,  not  by  handing  over  business  to  be  run  by  the 
old  political  form  of  government,  and  surely  not  by  putting  business 
interests  as  now  constituted  in  control  over  the  government.  The 
most  promising  possibilities  lie  in  taking  business  into  government, 
but  in  a  far  different  way;  and  one  that  should  make  every  business 
man  in  his  regular  business  in  some  degree  a  conscious  agent  of  public 
service,  not  merely  in  vague  recognition  of  a  vague  obligation  to  the 
public,  but  in  definite  and  important  duties,  balanced  by  definite  and 
important  benefits  received.  Perhaps  it  is  not  worth  while  at  present 
to  speculate  much  upon  the  precise  form  of  organization  in  which  the 
ideal  may  be  embodied,  and  the  election  of  a  business  entrepreneur 
by  those  who  deal  with  him  may  be  recognized  for  what  it  is — an 
election  to  an  important  public  office  by  a  method  which  sifts  out 
inefficiency  far  more  certainly  than  do  the  political  primary  and  the 
ballot.  Surely  no  solution  can  be  worthy  of  the  name  which  is  so 
weak  as  to  be  afraid  to  render  assistance  to  business  where  public  or 
collective  action  is  needed  to  make  business  truly  efficient.  Never- 
theless there  is  one  thing  that  must  be  guarded  against  as  one  guards 
against  the  plague.  The  alliance  of  business  and  government  must 
«ot  take  such  shape  that  it  can  continue  to  lead  to  wars,  as  it  has  in 
the  past.  If  efficiency  in  foreign  trade  demands  governmental  aid, 
that  aid  should  be  internationalized,  or  we  need  expect — and  will 
deserve — no  ending  of  international  armed  conflicts.1 

Or  perhaps,  since  democracy  means  inefficiency  as  compared  to 
autocracy,  inefficiency  is  what  we  are  fighting  to  make  the  world  safe 

1  Cf .  chapter  xv. 


WAR'S  LESSONS  IN  NATIONAL  EFFICIENCY  587 

for.  There  is  much  to  be  commended  in  the  ideal  of  economic  ineffi- 
ciency, if  by  that  is  meant  fewer  commodities  and  a  more  leisurely  and 
normal  life.  That  would  be  a  higher  grade  of  efficiency,  in  terms  of 
living.  But  it  would  be  fatal  to  the  nation's  military  strength,  and 
there  is  little  chance  that  the  outcome  of  the  war  will  free  us  from 
the  cruder  demands  of  technical  efficiency.  And  in  any  case  it  is  of 
the  utmost  importance  for  us  to  hold  fast  all  the  lessons  the  war  can 
teach  us  as  to  the  means  of  permanently  increasing  the  success 
of  communities  in  getting  what  they,  as  communities,  genuinely 
desire. 


XV 

ECONOMIC  FACTORS  IN  AN  ENDURING  PEACE 

Introduction 

With  this  chapter  we  return  to  a  consideration  of  the  perennial 
problem  of  international  economic  friction.  If  at  the  end  of  this  war 
we  are  to  lay  the  foundations  for  a  new  world-order,  it  is  not  enough 
that  we  merely  should  convince  Germany  during  the  war  that  war 
does  not  pay  (cf.  chap,  ii)  in  a  positive  sense;  it  is  not  enough  that  we 
establish  international  tribunals  and  an  international  police  force, 
important  as  these  may  be.  Nor  will  it  suffice  to  attempt  an  economic 
boycott  of  the  enemy.  We  must  at  least  make  an  attempt  to  organize 
the  world  at  the  end  of  the  war  in  a  way  that  will  break  the  vicious 
cycle  of  influences  (see  p.  3)  that  leads  to  economic  rivalries  and 
international  friction. 

The  readings  in  the  present  chapter  contain  no  answer  to  this 
greatest  of  world-conundrums.  They  are  designed  merely  to  raise 
the  problem  in  its  more  important  aspects  and  to  indicate  that  already 
the  interests  and  influences  that  have  led  to  past  wars  are  laying  the 
groundwork  for  future  rivalries  and  antagonisms  (Sections  LXVT  and 
LXVII).  The  more  immediate  issue  is  that  involved  in  the  control  of 
raw  materials  during  the  period  of  reorganization  at  the  end  of  the  war. 
There  are  at  present  diverse  views  as  to  the  organization  and  disposi- 
tion of  the  limited  quantities  of  basic  supplies  that  will  exist  at  the 
conclusion  of  peace.  On  the  one  hand,  it  is  urged  that  the  Allies 
should  cement  their  control  of  international  trade  and  force  Germany 
into  a  position  of  secondary  importance  in  the  world  of  the  future. 
Now  if  the  war  ends  in  an  inconclusive  peace — the  sort  of  peace 
which  would  be  only  an  armistice — this  would  undoubtedly  be  sound 
inter-allied  strategy.  But  if  the  war  terminates  in  such  a  way  as  to 
give  hope  for  a  world  in  which  the  nations  shall  live  in  amity,  trust, 
and  understanding,  all  nations  must  join .  in  a  common  economic 
alliance — a  co-operative  alliance  for  purposes  of  mutual  material  and 
cultural  advancement.  The  situation  calls  for  an  entirely  new  type 
of  international  statecraft — one  that  will  envisage  the  economic 
interdependency  of  nations  and  peoples  no  less  than  the  rights  and 
aspirations  of  a  common  humanity. 

588 


ECONOMIC  FACTORS  IN  AN  ENDURING  PEACE  589 

LXVI.     The  Raw-Materials  Question 

i.     GERMANY'S  NEED  OF  RAW  MATERIALS1 

After  the  war  is  over  the  German  Empire  will  resemble  a  great 
store  which  has  sold  out  its  stocks.  In  the  first  three  years  of  war, 
goods,  most  of  them  raw  material,  to  the  value  of  $4,000,000,000  were 
prevented  from  entering  Germany.  There  is  an  absolute  shortage 
of  everything  "from  cotton  to  sulphur,  from  seal  bacon  to  platinum." 
That  shortage  is  a  serious  danger,  for  it  stands  to  reason  that  just  as  a 
man  out  of  breath  cannot  run,  a  pumped-out  state  cannot  engage  in 
a  new  war.  She  must  first  of  all  get  her  breath. 

Does  anyone  imagine  that  the  peace  will  bring  with  it  sudden 
quiet?  Our  statesmen  cannot  tell.  Hitherto  they  have  not- been 
very  reliable  augurs.  This  war  has  surprised  them,  notwithstanding 
a  hundred  warnings.  Our  statesmen  had  dreamed  of  work  brother- 
hoods, and  then  war  came.  One  lesson  we  have  to  learn — to  be  on 
our  guard.  We  must  cast  away  our  amazing  sentimentality — this 
dangerous  inheritance  of  the  Teutonic  race.  We  must  see  things  as 
they  really  are. 

Peace  will  not  bring  us  supplies.  Even  should  peace  open  every 
market  in  the  world,  it  would  not  prevent  the  wildest  competition 
for  raw  material  and  food  supplies.  Every  cotton  spinner  will  struggle 
to  obtain  a  quick  supply  of  cotton,  every  gardener  will  strive  for  seeds, 
every  farmer  for  oil  cakes.  English  and  German,  French  and  Austrian, 
all  will  madly  struggle  for  supplies.  And  those  who  in  war  were  allies 
will  be  economic  enemies  on  the  markets. 

The  spinner  must  have  cotton  if  the  home-coming  textile  workers 
are  to  have  employment  and  if  he  is  to  pay  his  burden  of  taxation. 
What  will  happen  when  these  millions  return  from  the  front  and 
cannot  be  employed  because  of  the  lack  of  raw  material  ?  We  must 
not  rely  on  the  possibility  of  obtaining  supplies  simply  by  paying  for 
them.  Money  will  not  bring  in  the  goods,  and  will  foreign  countries 
accept  our  paper  ?  Besides,  tonnage  will  have  sunk  to  the  very  lowest. 
Against  these  inevitable  economic  catastrophes,  which  in  certain 
circumstances  can  be  almost  as'  destructive  as  war  itself,  there  is  only 
one  possible  course — prevention. 

The  victors  in  the  great  war,  that  is  to  say  the  Central  Powers, 
must  insert  this  condition  in  the  peace  instrument:  "We  demand  a 

1  By  Prince  du  Loewenstein  Wertheim  Frenderburg.  This  article  appeared  in 
Die  Wirklichkeit  and  was  reprinted  in  the  American  Metal  Market  and  Daily  Iron 
and  Steel  Report,  April  4,  1918. 


590  ECONOMICS  OF  WAR 

portion  of  the  war  indemnity  in  raw  material,  and  this  immediately 
and  before  other  powers  have  been  supplied."  The  victors  must  be 
the  first  to  eat.  We  thus  get  our  goods  through  the  state.  These 
goods  are  given  over  to  our  industrials,  to  our  farmers,  traders,  etc. 
In  this  way  the  state  would  fructify  all  necessary  channels  in  a  way 
hitherto  unimagined,  and  besides,  in  this  way  we  gain  a  good  start 
over  all  competitors  among  foreign  nations. 

In  this  way  Germany  could  re-establish  its  national  economics  and 
avoid  the  catastrophe  of  unemployment,  exorcise  the  spectre  of  want, 
and  banish  all  danger.  The  manufacturer  gets  his  material,  the 
farmer  his  fodder,  the  trader  his  goods,  the  workman  his  earnings,  the 
people  their  food,  and  the  state  its  indemnity. 

England  must  supply  tin  and  wool,  and  as  for  colonies  like  Canada, 
they  must  yield  us  copper,  nickel,  cobalt,  and  leather.  Australia 
must  produce  spelter,  wool,  grain,  and  frozen  meat,  and  other  colonies 
jute,  leather,  fats  and  oils,  rubber,  rice,  tea,  cocoa,  etc.  South  Africa 
will  supply  us  with  gold,  and  Egypt,  should  it  still  remain  under 
British  rule,  with  cotton.  France  will  give  olive  oil,  other  oils,  and 
wine,  and  Algeria  will  give  us  cork  and  phosphates.  Italy  will  supply 
vegetables,  sulphur,  raw  silk,  hemp,  and  oil,  and  from  Russia  will  come 
wheat,  barley,  flax,  oil  cake,  leather,  eggs,  platinum,  and  bismuth. 

This  process  of  indemnification  must  be  continuous  until  the  entire 
indemnity,  as  far  as  possible,  has  been  paid.  It  is  only  in  this  way 
and  by  such  means  that  the  war  and  its  consequences  can  be  changed 
for  us  into  a  source  of  blessing  which  will  again  raise  our  land  and 
people  to  their  old  height,  which  will  save  them  from  the  abyss  of 
want,  from  crushing  taxation,  from  mass  emigration.  Destiny 
compels  us  to  take  these  steps,  and  we  must  take  them  or  perish.  It 
would  be  a  crime  were  we  to  allow  false  magnanimity  or  a  palsied  will 
to  prevent  us  utilizing  our  victory  to  the  full.  If  we  neglect  this 
opportunity  all  eternity  will  never  give  us  such  another  chance. 

2.    THE  PARIS  ECONOMIC  CONFERENCE1 

The  representatives  of  the  allied  governments  assembled  in  Paris 
for  the  purpose  of  carrying  out  the  charge  entrusted  to  them  at  the 
Conference  of  Paris,  of  March  28  last,  and  of  turning  to  account  their 
unity  of  views  and  interests.  At  the  close  of  the  proceedings  it  was 
decided  that  the  members  of  the  congress  should  submit  for  the 

1  Adapted  from  Facts  about  the  War:  A  Bulletin  of  Information,  published  by 
the  Paris  Chamber  of  Commerce.  Paris,  July,  1916,  No.  39. 


ECONOMIC  FACTORS  IN  AN  ENDURING  PEACE  591 

approval  of  their  respective  governments  the  following  resolutions: 
First,  measures  to  be  taken  for  the  duration  of  the  war;  chiefly  con- 
sisting in  me  unification  of  the  laws  bearing  upon  economic  relations 
with  the  enemy.  Second,  temporary  measures  for  the  time  of  recu- 
peration after  the  war;  for  the  commercial,  industrial,  agricultural, 
and  maritime  reconstitution  of  the  allied  countries.  Third,  permanent 
measures  for  mutual  assistance  and  collaboration  among  the  Allies. 

When  the  text  of  these  decisions  was  handed  to  the  press,  M. 
elemental,  the  Minister  of  Commerce,  made  certain  declarations  with 
a  view  of  specifying  the  importance  and  compass  of  the  resolutions. 
The  principal  passages  were  as  follows : 

Dumping  is  the  favorite  weapon  of  the  Germans  for  acquiring 
commercial  supremacy.  It  consists  on  the  whole  of  measures  afford- 
ing bonuses  for  exportation,  direct  or  otherwise;  for  selling  inland  at 
a  higher  rate  than  abroad,  etc with  a  view  to  ruining  competi- 
tive foreign  industries. 

The  Conference  of  Paris  has  provided  for  thwarting  this  policy — 
if  the  war  took  us  by  surprise,  we  do  not  intend  that  peace  shall  do 
so  too.  The  Allies  are*  the  strongest  from  an  economic  point  of  view. 
They  represent  a  population  of  nearly  four  hundred  millions,  and 
dispose  of  the  greater  part  of  all  raw  materials — nickel  and  platina 
ores  and  aluminum  (bauxite)  are  entirely  in  the  Allies'  hands;  and 
84  per  cent  of  the  manganese.  As  regards  hemp,  the  Allies'  produc- 
tion is  four  and  a  half  times  larger  than  the  enemy's;  as  to  flax,  the 
Allies  hold  four-fifths  of  the  world's  production ;  with  regard  to  wool, 
their  supply  is  eleven  times  larger  than  that  of  the  adversaries;  in 
silk,  eight  times  greater;  they  have  the  monopoly  of  jute,  and  if  the 
neutrals  share  to  a  great  extent  in  the  production  of  cotton  with  the 
Allies,  their  adversaries  are  short  of  this  commodity. 

The  economic  superiority  of  the  Allies  is  obvious.  To  insure  jit 
there  never  was  any  question  at  the  conference  of  adopting  a  customs 
policy  for  all:  each  ally  will  remain  wholly  independent.  Each 
product  will  be  the  subject  of  separate  negotiations  between  the 
countries  interested  in  the  matter,  and  an  infinite  variety  of  combina- 
tions may  be  made. 

Another  principle  of  the  allied  governments  in  the  war  of  legitimate 
economic  defence  that  they  are  undertaking  to  wage  is  not  to  attack 
anyone.  The  neutral  nations  have  nothing  to  fear — we  are  working 
to  free  them.  The  destruction  of  German  economic  overlordship 
means  the  suppression  of  a  danger  that  threatens  them. 


592  ECONOMICS  OF  WAR 

By  increasing  the  productive  forces  of  the  allied  countries,  we 
render  them  better  able  than  in  the  past  to  check  the  attempts 
at  oppression  which  one  nation  might  in  the  future1  again  be 
guilty  of,  and  by  so  doing  we  are  working  for  the  assurance  of 
peace. 

Everyone  knows  how  Article  II  of  the  Treaty  of  Frankfort  has 
become  a  powerful  economic  weapon  in  the  hands  of  the  Germans, 
thanks  to  its  specialization  permitting  them  to  disregard  it  when  its 
observance  would  have  proved  a  drawback.  The  same  clause  will 
not  occur  again.  The  Allies  are  fully  agreed  upon  this  point,  even 
Russia  and  Italy,  with  whom  the  Germans  had  fondly  hoped  to  main- 
tain their  privileged  situation;  and  this  shows  to  what  extent  nations 
desire  to  be  freed  from  the  economic  domination  that  was  weighing 
upon  them. 

The  free  disposal  of  raw  materials  is  an  essential  factor  in  the 
economic  power  of  a  nation.  Germany  had  in  her  possession  foreign 
ores,  and  these  she  converted  upon  her  own  territory.  This  was  the 
case  with  Australian  zinc,  aluminum  from  Provence,  asbestos  from 
Russia  or  Scotland.  The  Allies  are  now  determined  not  to  leave 
these  articles,  so  essential  to  the  prosperity  of  a  nation,  to  others. 
Mr.  Hughes,  the  Prime  Minister  of  Australia,  told  me  that  not  a  grain 
of  zinc  ore  should  leave  his  country  for  Germany  even  if  in  the  future 
the  latter  should  order  double  the  quantity  she  purchased  there  in  the 
past. 

The  Allies  have  considered  the  measures  to  be  adopted  in  order 
to  save  their  industries  and  manufactures  from  suffering  through  the 
business  methods  practised  by  the  Germanic  Empires — especially 
dumping.  They  have  undertaken,  for  a  certain  length  of  time  which 
is  to  be  fixed  among  themselves,  to  subject  to  certain  prohibitions  or 
special  regulations  all  goods  originating  in  enemy  countries,  thus 
enabling  them  to  cope  in  an  efficacious  manner  with  any  attempts  at 
dumping.  The  fact  that  at  the  present  time  Germany  is  concen- 
trating upon  her  own  territory  large  supplies  of  goods,  mostly  manu- 
factured with  raw  materials  from  the  invaded  regions,  makes  this 
agreement  all  the  more  necessary.  It  would  be  preposterous  for 
the  Germanic  Empires,  immediately  after  the  war,  to  be  able  to 
raise  their  rate  of  exchange  by  selling  to  the  Allies  goods  manufac- 
tured from  raw  materials  which  were  their  (the  Allies')  own  special 
property. 


ECONOMIC  FACTORS  IN  AN  ENDURING  PEACE  593 

3.    THE  ORGANIZATION  OF  RAW  MATERIALS1 

It  is  becoming  increasingly  clear  that,  whatever  may  happen  in 
the  near  future  on  the  battle-fronts,  the  Allies  possess  in  their  immense 
concentration  and  control  of  economic  resources  a  weapon  which  must 
ultimately,  if  they  hold  together,  decide  the  war  in  their  favour. 
Indeed,  they  could  win  the  war  by  this  means  even  if  (absit  omen!} 
they  did  not  all  hold  together — for  the  Western  Powers  alone  would 
be  sufficient  to  drive  the  weapon  home. 

The  Paris  resolutions  have  been  frequently  represented  in  the 
allied  countries,  especially  in  America,  as  embodying  a  policy  of 
reaction  dictated  by  protectionist  interests.  Most  of  those  who  hold 
this  familiar  view  have  never  read  the  resolutions  or  the  preamble  by 
which  they  are  conditioned,  and  are  imperfectly  informed  as  to  the 
far-reaching  German  policy  to  which  they  were  a  belated  reply.  In 
reality,  of  course,  the  Paris  resolutions,  framed  as  they  were  in  June, 
1916,  during  the  critical  days  of  the  Verdun  attack,  served  a  double 
purpose.  They  were  partly  defensive  and  looked  forward  to  the 
possibility  of  a  "war  after  the  war"  against  a  Germany  in  secure 
possession  of  "Mitteleuropa."  They  are  certainly  open  to  criticism 
on  that  score  as  a  policy  of  despair,  but  not  as  a  policy  of  reaction,  for 
against  such  a  power  the  economic  boycott  would  have  been  the  only 
remaining  refuge  of  civilization.  But  in  so  far  as  they  envisaged 
action  by  the  Entente  and  neutral  powers  among  themselves,  the 
preamble,  with  its  insistence  on  an  international  standard  of  commer- 
cial fair  dealing,  will  remain  memorable  for  the  way  in  which  it  boldly 
set  what  has  hitherto  been  regarded  as  the  selfish  concern  of  separate 
governments  upon  an  international  footing;  and  the  same  applies  to 
the  resolution  as  to  the  co-operative  organization  necessary  for  the 
apportionment  of  supplies  at  the  end  of  the  war.  All  that  is  needed 
in  this  connection  is  that  the  Allies  shall  bring  their  policy  up  to 
date  by  adapting  it  to  the  present  economic  position,  which  is  very 
different  from  that  which  prevailed,  or  was  believed  to  prevail,  in 
June,  1916.  At  that  time  it  was  still  possible  to  think  of  the  post-war 
economic  situation  in  terms  of  markets;  to-day  it  is  obvious  that  the 
dominating  factor  is  supplies.  No  manufacturing  country  will  be' 
able  to  resume  its  export  trade  on  the  old  basis  or  even  to  demobilize 

1  By  "Atticus."  Adapted  from  "The  Economic  Weapon,"  The  New  Europe, 
IV  (July-October,  1917),  353-59.  Published  by  Constable  &  Company,  Ltd. 


594  ECONOMICS  OF  WAR 

its  armies  till  it  h'as  secured  the  raw  materials  which  are  essential  to 
industrial  production. 

The  world-shortage  of  supplies,  and  of  shipping  to  convey  them 
from  producing  to  consuming  and  manufacturing  countries,  will 
therefore  be,  if  not  the  most  important,  certainly  the  most  urgent, 
problem  which  will  confront  the  world  on  the  close  of  hostilities.  It 
will  be  the  first  international  task  of  the  new  world-order,  and  on  the 
way  in  which  it  is  carried  out  will  depend  the  spirit  and  atmosphere 
that  will  prevail  during  all  the  other  difficult  labours — the  fixing  of 
frontiers,  the  safeguarding  of  minorities,  the  rehabilitation  of  public 
right — on  which  the  Powers  will  be  closely  engaged  for  many  months 
after  the  first  urgent  questions  have  been  disposed  of. 

The  time  would  seem  to  be  ripe,  then,  for  a  new  economic  con- 
ference to  revise  and  bring  up  to  date  the  findings  of  the  conference 
of  June,  1916.  It  should  not  be  a  conference  of  all  the  Powers,  great 
and  small,  which  have  either  declared  war  on  Germany  or  broken  off 
relations  with  her.  It  should  be  summoned  for  the  purpose  of  con- 
sidering the  post-war  economic  situation,  and  of  discussing  how  best 
the  resources  of  the  various  states  could  be  organized  in  the  interest 
of  their  own  peoples  and  of  the  civilized  world.  Such  a  conference, 
when  it  met,  would  find  itself  compelled,  like  its  predecessor,  to 
abandon  the  self-regarding  competitive  outlook  and  to  fall  back  on 
co-operative  methods.  It  would  inevitably  be  driven  to  consider  how 
the  existing  inter-ally  system  of  economic  control  could  best  be 
adapted  to  post-war  purposes  and  to  the  needs  of  neutrals.  The 
result  would  probably  be  the  organization  of  something  which  could 
be  described  as  a  relief  commission,  with  comprehensive  powers  in 
respect  to  shipping  and  supplies  to  tide  over  the  period  when  the 
pressure  of  the  shortage  will  be  most  severe.  There  is  good  ground 
for  believing  that  such  a  plan  is  both  practicable,  in  the  light  of  recent 
experience,  and  acceptable  to  the  Powers  chiefly  concerned. 

If  such  a  plan  were  adopted,  it  should  be  made  clear  to  the  Central 
Powers  that  when  they  have  accepted  the  allied  terms,  including,  of 
course,  full  reparation  by  the  guilty  parties  for  the  ravages  of  war  and 
acts  done  in  violation  of  international  law,  there  is  no  desire  to  penalize 
them  further  or  to  hinder  their  recuperation.  Their  peoples  should  be 
offered,  under  these  conditions,  a  proportionate  share  in  the  controlled 
supplies  and  insured  against  any  legal  restriction  upon  their  legitimate 
trading  activities  at  the  expiration  of  the  period  of  trade  control. 


ECONOMIC  FACTORS  IN  AN  ENDURING  PEACE  595 

No  pledge  or  action  by  governments,  of  course,  can  give  back  to  the 
German  trading  community  the  confidence  of  individual  dealers  or 
purchasers  in  the  countries  they  have  antagonized. 

4.    AN  ECONOMIC  ASSOCIATION  OF  NATIONS1 

I  have  been  much  interested  in  the  series  of  addresses  and  discus- 
sions at  the  recent  meetings  of  commercial  associations  in  the  United 
States,  such  as  the  chambers  of  commerce  and  the  Foreign  Trade 
council,  regarding  trade  after  the  war.  The  tone  of  these  discussions 
seems  to  show  clearly  a  desire  for  settled  arrangements  for  mutual 
help  between  all  the  nations  now  associated  in  the  war  against 
Germany.  These  are  also  our  feelings  in  Britain,  and  I  should  like 
to  make  some  acknowledgment  of  these  recent  utterances  of  prominent 
American  commercial  men  by  trying  to  describe  roughly  the  state  of 
British  policy  at  this  moment  in  regard  to  such  matters. 

The  resolutions  of  the  Paris  economic  conference  have  been  much 
discussed  during  the  last  two  years.  When  they  were  written  we  had 
an  alliance  of  eight  nations,  six  of  whom  had  suffered  the  immediate 
ravages  of  war.  The  world  outside,  including  the  United  States  with 
its  vast  resources,  was  neutral,  and  nominally,  at  any  rate,  the  neutral 
world  at  the  conclusion  of  peace  would  have  sold  its  products  where 
they  would  have  fetched  most  money. 

To  borrow  the  plain  words  of  the  recent  interallied  labor  con- 
ference, all  these  vast  resources  would  have  gone  to  those  who  could 
pay  most,  not  to  those  who  would  need  most,  so  the  Paris  conference 
was  a  defensive  agreement  of  those  then  engaged  in  the  war  to  secure 
their  own  people  against  starvation  and  unemployment  during  the 
period  of  reconstruction,  and  to  provide  for  the  restoration  to  economic 
life  of  the  ravaged  territories  of  Belgium,  Poland,  Serbia,  France,  and 
Italy. 

These  objects  retain  all  their  old  importance.  They  are  simple 
measures  of  self-preservation.  It  is,  for  example,  still  essential  that 
we  should  forestall  the  aggressive  efforts  of  the  Central  Powers  to  use 
their  money  power  to  snatch  on  the  morning  after  the  war  the  raw 
materials  needed  for  the  reconstruction  of  the  peoples  in  the  western 
and  eastern  theaters  of  war  whom  they  have  themselves  despoiled. 

1  By  Lord  Roberts.     In  daily  press,  July  15,  1918. 

ED.  NOTE. — This  statement  outlines  the  purposes  of  an  association  of  twenty- 
four  nations  in  employing  the  economic  weapon  along  with  the  military  weapon 
against  Germany. 


596  ECONOMICS  OF  WAR 

But,  while  the  essential  needs  of  ourselves  and  of  the  nations  which 
are  fighting  with  us  the  battle  of  liberty  and  justice  remain  unaltered, 
the  Alliance  of  Eight  has  expanded  into  the  Association  of  Twenty- 
four  Nations,  of  which  President  Wilson  spoke  in  his  recent  address 
to  the  Red  Cross.  It  is  no  longer  a  question  of  forming  some  narrow 
defensive  alliance,  but  of  laying  down  the  economic  principles  of  the 
Association  of  Nations  which  is  already  in  existence,  and  to  member- 
ship in  which  we  are  committed. 

What  are  these  principles  to  be  ?  The  President  has  stated  them 
in  memorable  words. 

Each  member  of  the  Association  of  Nations  may  have  to  protect 
its  citizens  in  one  way  or  another  after  the  war,  but  our  aim  must  be  a 
comprehensive  arrangement  of  liberal  intercourse  with  all  members  of 
the  association  by  which  each  one  of  us,  while  preserving  his  own 
natural  security,  may  contribute  to  meet  the  needs  and  aid  in  the 
development  of  his  fellow  members.  Nor,  of  course,  can  our  arrange- 
ment for  mutual  assistance  exclude  all  competition,  though  we  are 
most  anxious  that  co-operation  should  be  the  keynote  of  our  commer- 
cial relations.  Our  feelings  in  this  matter  cannot  be  better  described 
than  in  the  words  of  James  A.  Farrell  to  the  Foreign  Trade  council, 
namely: 

"The  sacrifices  that  are  being  cheerfully  endured  today  by  men 
engaged  in  foreign  commerce  in  the  necessary  curtailment  of  their 
business  through  the  conservation  of  shipping  are  an  earnest  of  the 
elevation  of  method  and  of  purpose  which  will  control  the  conduct  of 
our  external  trade  in  the  future." 

There  is  but  one  obstacle  to  this  economic  association  of  nations. 
That  obstacle  is  Germany — the  Germany  described  by  President 
Wilson  in  the  words  which  I  have  already  quoted — a  Germany  living 
"  under  ambitious  and  intriguing  masters."  You  have  seen  the 
provisions  of  her  commercial  treaties  in  the  east,  and  with  all  the 
groups  of  peoples  frorri  the  Arctic  ocean  to  the  Black  Sea.  Her 
economic  policy  toward  these  groups  is  absolutely  contrary  to  our 
principles.  That  policy  began  by  systematic  and  lawless  plundering 
in  Poland,  in  the  Ukraine,  and  elsewhere.  Now  everywhere  she  has 
legalized  this  plunder  by  placing  the  weaker  nations  under  onerous 
commercial  tribute  to  herself. 

On  Lithuania  she  has  imposed  her  coinage.  From  Roumania 
and  the  Ukraine  she  has  exacted  a  guarantee  of  supplies  irrespective 
of  their  own  needs,  and  at  flagrantly  unjust  rates  of  compensation. 


ECONOMIC  FACTORS  IN  AN  ENDURING  PEACE    -         $97 

She  has  appropriated  the  natural  resources  of  Roumania  in  the  form 
of  a  lease  to  German  corporations.  On  Russia,  Finland,  and  the 
Ukraine  she  has  imposed  unfair  and  one-sided  tariff  arrangements. 
The  people  of  Finland,  in  fact,  now  find  that  their  liberties  have  been 
bartered  away  in  an  agreement  signed  secretly  in  Berlin,  and  it  is 
actually  being  proposed  that  thousands  of  Finns  should  be  deported 
to  work  for  German  masters. 

Having  established  control  over  the  Dardanelles  and  the  Baltic, 
Germany  has  now  brought  under  her  own  control  the  third  great 
highway  of  European  trade — the  Danube — by  destroying  the  inter- 
national commission  which  had  long  become  an  established  organ  of 
European  polity,  and  now,  in  order  that  there  may  not  be  any  mistake 
as  to  the  significance  of  these  acts,  her  foreign  minister  has  declared 
that  this  Roumanian  treaty  in  particular  will  be  made  the  precedent 
and  foundation  for  the  economic  terms  to  be  demanded  by  the 
Central  Powers  at  the  general  peace.  The  significance  of  this  declara- 
tion is  evident  from  Kuehlmann's  own  words,  that  "the  damages 
Roumania  will  have  to  pay  will  amount  to  a  very  considerable  sum 
in  the  long  run,  a  sum  which  perhaps  does  not  very  substantially  differ 
from  that  which  might  presumably  have  been  obtained  by  officially 
demanding  a  war  indemnity." 

5.    A  GERMAN  VIEW  OF  THE  RAW-MATERIALS 
BOYCOTT1 

The  Central  Powers  are  fighting  for  their  integrity  and  capability 
of  development,  and,  since  they  are  industrial  nations,  this  implies 
unimperiled  imports  at  all  times — that  is,  what  we  commonly  under- 
stand by  the  expression  "freedom  of  the  seas."  A  peace  that  does 
not  provide  for  this  in  a  practical  manner  is  not  a  peace  that  the 
Central  Powers  can  conclude,  and  they  will  not  conclude  it  unless  the 
Entente  can  give  us  the  "knock-out  blow."  ....  If  the  Entente 
holds  to  its  threat,  and  it  is  not  possible  to  carry  through  the  supply 
of  raw  materials  as  a  peace  condition,  then  the  war  will  go  on;  the 
sole  question  that  arises  is,  Are  the  Central  Powers  sufficiently  strong 
economically  to  hold  out  in  the  future  against  the  stoppage  of  raw 
materials  ?  That  the  Entente  is  no  match  for  them  in  the  field  is  now 

'Adapted  from  Herr  Dernburg's  "Economic  Outlook,"  The  New  Europe 
(June  27,  1918),  pp.  258-61. 

ED.  NOTE. — Early  in  the  war  Dernburg  visited  the  United  States  as  the  official 
spokesman  of  the  German  government. 


598  ECONOMICS  OF  WAR 

even  clearer  than  before.  There  is  absolutely  no  doubt  that,  in  this 
respect,  our  prospects  have  extraordinarily  improved.  An  immense 
sphere  lies  open  to  us  in  the  East.  It  will  need  time  and  patience  to 
organize  the  future  of  it;  but  as  we  alone  have  the  supply  routes  in 
our  hands,  we  can  shut  out  all  competition  from  others  and  stretch 
out  our  suckers  far  into  the  interior  of  Asia.  It  is  just  as  little  in 
doubt  that  the  horizon  is  permanently  darkened  for  our  enemies' 
supplies.  Little  by  little  the  food  shortage  is  taking  on  the  same 
acute  forms  with  them  as  in  Central  Europe;  we  can  say,  moreover, 
that,  since,  as  a  rule,  foodstuffs  have  the  precedence  in  transport  over 
raw  materials,  the  supply  of  raw  materials,  too,  must  have  become 
extraordinarily  scanty  for  some,  at  least,  of  our  enemies. 

The  threat  of  Wilson  also  has  only  this  meaning — that  he  opposes 
the  boycott  of  raw  materials  as  a  compensation  to  the  great  territorial 
successes  of  the  Central  Powers  in  the  East  and  West  (against  which 
the  Entente  h.ave  nothing  to  show  except  the  German  colonies  and 
small  portions  of  the  Turkish  Empire) ;  the  President  indicates  by  this 
what  will,  among  other  things,  be  discussed  at  the  peace  arrangements. 
It  is  useless  to  hide  from  ourselves  that  we  are  concerned  here  with  an 
object  of  compensation  of  very  great  importance;  that  is  obvious 
from  the  situation.  Even  in  the  event  of  the  return  of  the  German 
colonies  with  the  addition  of  a  good  slice  of  Africa  as  well,  the  Central 
Powers  will  not  be  able  to  satisfy  their  own  demand  for  raw  material. 
There  are,  moreover,  but  very  few  neutral  producers;  neither  Sweden 
nor  Spain  nor  the  Dutch  colonies  can  supply  us  with  what  is  necessary, 
even  if  they  supply  valuable  contributions.  The  rest  of  the  world, 
however,  with  the  exception  of  Mexico,  the  Argentine,  and  Chile,  is 
fighting  on  the  side  of  our  enemies,  and  since  the  sovereignty  of  all 
these  states  empowers  them  to  direct  their  exports  and  imports  in 
any  direction  they  desire,  there  will  be  nothing  to  prevent  them  from 
continuing  their  war  legislation  even  after  the  war.  England  and  her 
dominions  have  already  begun  this :  England  has  recently  introduced 
the  "Non-ferrous  Metals  Act,"  whereby  all  the  non-ferrous  metals 
of  the  British  Empire — that  is  to  say,  precisely  those  which  we  need — 
may  be  sold  for  five  years  after  the  conclusion  of  peace  only  according 
to  the  instructions  of  the  Board  of  Trade.  A  complete  substitute 
for  the  trade  with  three-quarters  of  the  world  and  for  the  absence  of 
their  raw  materials  will,  in  spite  of  the  enormous  growth  of  the  sub- 
stitute industries  of  the  Central  Powers,  be  impossible  for  us.  And 
since  there  are  still  a  great  number  of  people  who  look  at  things  accord- 


ECONOMIC  FACTORS  IN  AN  ENDURING  PEACE  599 

ing  to  the  position  on  the  European  war  map,  a  reference  of  this  kind 
is  not  without  importance. 

When  peace  comes,  then,  one  of  the  most  important  points  for  the 
Central  Powers,  who  for  decades  have  had  their  orientations  overseas, 
must  be  the  reopening  and  the  keeping  open  of  the  export  markets  and 
those  of  raw  materials;  the  freedom  of  the  seas  must  be  attained. 

Once  military  operations  stop,  economic  life  again  comes  into  the 
foreground;  indeed,  begins  to  dominate  everything.  Now,  how  are 
these  scanty  raw  materials  to  be  divided  ?  I  have  already  said  that  a 
great  part  of  them  is  in  the  hands  of  the  states,  and  that,  in  view  of  the 

shortage,  the  whole  world  will  inevitably  be  rationed In 

other  words,  the  distribution  of  raw  materials  and  of  a  portion  of 
articles  of  consumption  will,  for  a  certain  time,  which  should  be  as 
short  as  possible  but  will  not  be  short,  have  to  rest  in  the  hands  of  the 
states.  That  is  extremely  regrettable  from  the  point  of  view  of 
personal  initiative,  international  commerce,  the  development  of 
means  of  communication,  and  the  technical  progress  which  depends  on 
individual  creative  activity.  But  it  is  an  inevitable  result  of  this 
world-conflagration  and  the  means  employed  in  it.  Any  other  solu- 
tion delays  convalescence  and  keeps  prices  up.  Imagine  all  the 
traders  of  the  world  let  loose  on  the  shortage,  both  of  raw  materials 
and  of  transport.  The  inevitable  result  would  be  an  immeasurable 
increase  of  freights,  an  enormous  rise  in  all  raw-material  price,  friction 
and  difficulties,  and  also — since  it  is  not  everybody  who  has  at  hand 
the  means  of  payment — a  universal  slump  in  the  exchange,  which  has 
already  become  shaky  through  the  diminution  of  cover.  That  this 
prognostication  cannot  be  mistaken  is  shown  by  the  measures  which 
have  already  been  taken  everywhere  in  the  various  countries  for 
transitional  economics.  In  view  of  the  impossibility  of  forming  an 
exact  estimate  of  the  situation  as  it  will  be  on  the  conclusion  of  peace, 
these  measures  naturally  stop  at  the  national  frontiers,  and  leave 
open  the  question  how  the  goods  are  subsequently  to  get  within  them, 
and  who  is  to  receive  them  there.  But  even  in  these  preliminary 
arrangements  it  is  the  state  which  reserves  to  itself  the  distribution 
and  rationing,  the  amount  of  importation,  and  the  method  of  pay- 
ment, with  the  aid  of  the  special  organization  of  the  industries  con- 
cerned. These  tendencies  evoke  a  storm  of  protest  in  many  quarters 
as  a  result  of  feelings  which,  as  I  have  said  above,  I  share.  That  does 
not  alter  the  fact  that  in  this  case  a  virtue  must  be  made  of  the  neces- 
sity, and  there  are  no  other  ways  which  secure  success.  Experiments 


600  ECONOMICS  OF  WAR 

we  cannot  afford.  Just  as  at  home  a  rational  distribution  of  raw 
materials  and  cargo-space — which  means  also  of  the  export  of  freight 
goods — cannot  be  avoided,  so  also  the  situation  requires  international 
distribution,  and  both  must  be  in  the  hands  of  the  states,  and  inter- 
nationally guaranteed  by  international  convention  imposing  obliga- 
tions on  the  states,  and  not  leaving  a  free  hand  to  private  persons, 
i.e.,  a  League  of  Nations  for  the  universal  world-provision  of  a  human- 
ity suffering  from  impoverishment  of  raw  materials.  A  thing  of  this 
kind  cannot  be  attained  in  the  event  of  a  pure  might  peace.  It 
requires  a  peace  by  understanding,  for  which  we  are  now,  as  always, 
ready,  but  which  can  only  be  concluded  when  our  opponents  have 
arrived  at  a  similar  condition  of  reason. 

6.    INTERNATIONAL  CONTROL  OF  RAW  MATERIALS1 

It  appears  certain  that  at  the  conclusion  of  peace  the  struggle 
for  basic  raw  materials  will  be  the  predominant  factor  in  the  inter- 
national situation.  It  is  conceded  that  it  cannot  be  left  to  the  free 
play  of  individual  competitive  forces  in  the  various  countries,  and  if 
the  various  nations  be  allowed  to  engage,  as  nations,  in  the  purchase 
of  raw  materials  from  private  sellers  there  is  virtually  no  limit  to 
which  the  price  as  set  by  competitive  national  bidding  might  go. 
It  would  be  similar  to  the  wheat  situation  two  years  ago  when 
European  nations  set  up  what  practically  amounted  to  an  unlimited 
demand.  Speculation  under  such  circumstances  becomes  rampant 
and  ungovernable,  because  wholly  unpredictable  (non-business)  fac- 
tors are  at  work.  Another  possibility  is  one  in  which  we  have  neither 
private  buying  nor  private  selling — in  which  foreign  trade  as  a  whole 
is  controlled  by  the  respective  governments.  This  appears  to  be  a 
simple  necessity  if  we  are  to  prevent  the  utter  disorganization  of  inter- 
national trade. 

Now  governmental  control  of  the  export  and  import  of  raw  mate- 
rials involves  in  the  nature  of  the  case  international  control — com- 
mercial agreements  must  be  made  on  the  basis  of  international  needs. 
And  if  we  are  to  lay  the  ghost  of  future  trade  rivalries,  Germany  must 
be  freely  accepted  as  a  party  in  such  an  international  organization. 
The  needs  for  materials  on  the  part  of  the  various  nations  are  to  a 
considerable  extent  reciprocal,  though  some  of  the  present  belligerents 
are  obviously  much  better  equipped  in  respect  to  raw  materials  than 
others.  But  if  the  United  States,  for  instance,  were  for  this  reason  to 

1  An  editorial. 


6oi 

attempt  a  selfish  policy  of  retaining  its  own  supplies  entirely  for  its 
domestic  requirements  it  would  not  only  incur  the  enmity  alike  of 
present  allies  and  foes,  but  it  would  at  the  same  time  seriously  weaken 
the  basis  of  its  own  international  trading  operations  for  the  future — 
weaken  it  not  only  because  of  the  rivalries  thus  engendered,  but  also 
by  delaying  the  recovery  of  business  prosperity  and  crippling  the 
exchange  power  of  those  with  whom  we  hope  to  trade. 

An  international  control  of  the  distribution  of  raw  materials  as 
between  nations  appears  therefore  to  be  indispensable,  both  for 
recuperation  from  the  ravages  of  war  and  for  laying  the  basis  for 
amicable  trade  relations  in  the  future.  And  let  it  be  repeated  that 
to  exclude  Germany  from  participation  in  such  international  organiza- 
tion is  certain  to  intensify  the  international  trade  rivalries  which 
have  always  been  such  potent  causes  of  war.  Germany's  need  of  raw 
materials  is  such,  in  fact,  that  the  Allies  have  in  their  superior  resources 
a  most  effective  weapon  for  forcing  Germany  to  play  the  game  fairly. 
But  if  perchance  the  conditions  of  peace  are  not  such  as  to  bring 
Germany  into  such  an  organization,  then  we  may  as  well  look  forward 
to  continued  international  friction. 

The  opportunity  for  laying  the  basis  of  international  trade  co- 
operation that  the  end  of  the  war  will  afford  is  unique  and  may  never 
occur  again.  The  absolute  impossibility  of  leaving  the  immediate 
situation  to  the  free  play  of  competition  between  traders  makes  it 
easy  to  establish  an  international  organization  when  it  would  other- 
wise be  utterly  impossible.  If  only  the  Central  Powers  can  be 
included  on  equal  terms  we  may  find  it  possible  to  utilize  this  war 
readjustment  period  in  building  the  foundation  of  a  new  order  in 
international  trade  relations. 

LXVII.     Struggle  for  Foreign  Markets 
i.     GERMANY'S  FOREIGN  TRADE  PREPARATIONS1 

If  you  think  for  a  moment  that  the  Germans  will  be  so  crippled 
at  the  close  of  hostilities  that  they  will  be  unable  to  turn  their  atten- 
tion to  reknitting  the  rents  which  have  been  torn  by  American  and 
British  manufacturers  in  the  foreign  trade  net  of  the  German  Empire, 

1  By  P.  Harvey  Middleton.  Adapted  from  "The  Powerful  Foreign  Trade 
Combinations  of  Europe,"  Railway  Age  (April,  5,  1918),  pp.  884-85. 

ED.  NOTE. — Mr.  Middleton  is  executive  assistant  of  the  Railway  Business 
Association. 


602  ECONOMICS  .OF  WAR 

ponder  for  a  moment  over  the  fact  that  there  has  just  been  launched 
in  Hamburg  the  Corporation  for  the  Promotion  of  German  Foreign 
Trade,  with  an  initial  capital  of  $5,000,000,  for  the  purpose  of  explor- 
ing foreign  markets  and  building  new  foreign  railways.  The  Kolnische 
Zeitung  gives  the  following  summary  of  this  Association's  plans: 

"This  great  new  concern  is  to  occupy  itself  exclusively  with  the 
development  of  German  overseas  trade.  Important  export  houses, 
manufacturing  corporations,  shipping  lines,  and  banks  in  Hamburg 
and  all  the  other  commercial  and  industrial  centers  of  the  Empire 
will  be  interested.  The  company  is  to  serve  as  an  active  and  efficient 
axis,  round  which  all  Germany's  efforts  to  reknit  her  old  relations  and 
establish  new  ones  will  revolve.  It  is  not  to  be  a  bank  in  the  ordinary 
sense  or  an  export  bank.  It  will,  on  the  contrary,  refrain  from  banking 
operations  of  the  usual  sort.  It  will  act  primarily  as  a  syndicate  for 
exploring  foreign  markets,  and  when  advantageous  opportunities 
present  themselves  will  fulfill  the  functions  of  a  financial  promoting 
company.  It  will  take  up,  on  behalf  of  all  German  interests  con- 
cerned, promising  projects  abroad,  such  as  waterworks  construction 
and  operation,  railway  building,  harbor  and  dock  works,  and  trans- 
actions of  similar  magnitude.  These  the  company  will  not  only 
promote  and  carry  out,  but  if  necessary  provide  the  money  for.  The 
initial  capital  of  $5,000,000  is  wholly  provisional.  It  will  be  multiplied 
many  times  over  as  required." 

But  perhaps  you  are  deluding  yourself  with  the  belief  that 
Germany  will  not  have  any  ships,  that  we  have  captured  all  their 
big  ones,  and  that  embargoes  have  prevented  their  getting  the 
materials  to  replace  them.  Wrong  again.  The  Berlin  Tageblatt 
publishes  details  of  the  development  of  the  German  shipbuilding 
yards,  showing  that  in  1916  and  1917  all  the  private  yards,  except 
some  of  the  largest,  like  the  Vulkan  concern,  increased  their  capital. 
Blohm  &  Voss  of  Hamburg  raised  their  capital  from  $3,000,000  to 
$5,000,000,  and  the  Howaldt  yards  at  Kiel  raised  theirs  from  $1,000,- 
ooo  to  $2,500,000.  In  other  respects  the  German  concerns  have 
anticipated  the  needs  for  the  reconstruction  of  the  German  merchant 
marine.  The  Hamburg  American  Line  and  the  Allgemeine  Elek- 
tricitats  Gesellschaft  have  founded  the  new  Hamburg  Shipbuilding 
Company,  and  among  the  new  establishments  and  projects  are  two 
at  Liibeck,  one  at  Hamburg,  several  at  Stettin  and  Emden,  and  one  at 
Tonning. 


ECONOMIC  FACTORS  IN  AN  ENDURING  PEACE  603 

At  the  Vulkan  yards  near  Bremen  the  Hamburg  American  line 
recently  launched  a  i6,ooo-ton  steel  vessel,  christened  Rhineland, 
which  is  the  largest  ship  ever  laid  down  in  Germany  for  purely  freight- 
carrying  purposes.  The  German  press  acclaims  the  launching  not 
only  as  a  sign  of  Germany's  determination  to  make  her  presence  felt 
in  world-trade  after  the  war,  but  because,  despite  the  strain  imposed 
on  her  industries  for  purely  war  purposes,  her  shipyards  are  able  to 
turn  out  this  /'record-breaking"  merchantman.  The  Hamburg 
American  Line's  5o,ooo-ton  sister  ship  of  the  Vaterland,  the  Bismarck, 
has  been  completed,  and  this  same  line  is  credited  with  having  at 
least  one  other  giant  and  a  flock  of  two-score  or  more  medium-  and 
small-calibred  ships  built  and  building.  The  North  German  Lloyd 
has  completed  a  35,ooo-ton  express  steamer,  the  Hindenburg,  and  is 
pushing  work  on  an  ambitious  building  program. 

Do  you  know  what  a  cartel  is?  It  is  the  application  of  brute 
force  to  commercial  enterprise.  The  concerns  entering  it  renounce 
a  part  of  their  industrial  and  commercial  autonomy  in  order  to  secure 
the  advantages  of  cohesion.  The  cartel  differs  from  the  American 
trust  in  that  it  allows  the  individual  enterprises  attached  to  it  to 
remain  independent,  and  restricts  itself  to  enforcing  certain  controlling 
principles  in  regard  to  production,  prices,  and  competition.  It  aims 
at  removing  conflicts  and  losses  resulting  from  ruinous  competition 
and  lack  of  organization.  A  uniform  system  of  cost  accounting  and 
standardization  of  products  eliminates  waste.  Only  the  strongest 
cartels  undertake  to  influence  foreign  business,  maintaining  a  firm 
export  policy  and  exporting  at  lower  prices  than  are  charged  home 
customers,  finding  foreign  markets  an  excellent  outlet  for  excess 
production. 

The  Stahlwerksverband  or  steel  syndicate  is,  next  to  the  coal 
syndicate,  the  leading  German  cartel.  It  monopolizes  the  production 
and  distribution  of  steel  in  Germany.  At  the  time  of  its  foundation 
in  1904  it  had  a  total  output  of  7,900,000  metric  tons.  Its  products 
include  rails,  ties,  fishplates,  spikes,  bedplates,  structural  steel,  railroad 
axles,  and  steel  forgings.  The  administration  of  the  syndicate  is 
vested  in  a  general  assembly  of  all  the  members,  a  supervisory  council, 
and  managing  directors.  The  stock  is  exclusively  in  the  hands  of  the 
owners  of  the  steel  works,  and  may  be  transferred  only  with  the  con- 
sent of  the  general  assembly.  Each  member  has  one  vote  in  the 
assembly  for  every  10,000  tons  quota  of  production. 


604  ECONOMICS  OF  WAR 

The  Germans,  through  the  Stahlwerksverband,  are  formidable 
competitors,  not  only  because  of  the  advantages  of  export  bounties 
and  freight  rebates,  but  because  they  keep  in  close  touch  with  the 
requirements  of  foreign  markets  through  effective  and  expensive 
representation  on  the  ground,  and  because  the  syndicate  backs  up  the 
credits  granted  by  individual  manufacturers  to  secure  initial  business. 
This  cartel  believes  in  dumping  in  order  to  keep  its  plants  working 
without  interruption  at  maximum  capacity.  It  controls  over  90 
per  cent  of  the  production  of  steel  products  in  Germany.  Before  the 
war  this  cartel  had  an  annual  turnover  of  $238,000,000,  and  held  down 
English  steel  production  by  delivering  steel  billets  in  England  at  lower 
prices  than  the  English  could  produce  steel.  In  1914  steel  bars  were 
offered  in  New  Orleans  at  $6  per  ton  below  the  lowest  figure  at  which 
an  American  firm  could  manufacture  them. 

This  steel  cartel  controls  the  sale  of  its  products  by  merchants  in 
Germany,  Austria,  Switzerland,  Belgium,  and  France.  It  has  been 
aptly  termed  a  giant  octopus,  whose  eyes  are  at  Bremen,  at  Diisseldorf , 
and  at  Berlin,  with  tentacles,  armed  with  innumerable  suckers, 
reaching  out  to  Asia  Minor  by  way  of  Constantinople,  threatening 
London  through  Rotterdam  and  Antwerp,  stretching  across  Switzer- 
land into  Italy,  extending  over  the  Atlantic  and  South  America, 
embracing  Chile,  spreading  out  over  Brazil,  Argentina,  and  Mexico, 
and  in  another  direction  to  the  Indian  Ocean  and  the  China  seas,  and 
fixing  themselves  firmly  on  the  Far  Eastern  strands. 

There  are  other  German  organizations  for  securing  foreign  trade 
in  railway  supplies.  The  Orenstein  Koppel  Aktien  Gesellschaft 
represents  a  syndicate  of  producers  of  Decauville  (narrow  gauge) 
railway  materials.  This  combination  has  practically  stamped  out 
the  French  and  Belgian  competition  which  formerly  controlled  the 
supply  to  Turkey.  The  Verband  Deutscher  Waggon  Fabrikanten 
controls  90  per  cent  of  the  total  German  production  of  railway  cars. 

The  Association  of  German  Machine  Tool  Manufacturers  has 
made  a  study  of  export  trade  with  special  reference  to  the  competition 
of  American  manufacturers,  whom  they  have  actively  opposed.  The 
German  Electrical  Manufacturers'  Association  has  made  a  special 
study  of  tariffs  and  commercial  treaties,  and  secured  many  changes 
in  both  for  the  benefit  of  German  exporters  of  electrical  equipment. 
It  keeps  its  members  informed  of  new  street  railway  and  power  plant 
projects  in  other  countries,  and  suggests  valuable  foreign  connections. 
German  business  men  have  realized  the  great  importance  of 


ECONOMIC  FACTORS  IN  AN  ENDURING  PEACE  605 

commercial  treaties  and  there  is  a  special  organization  for  this  par- 
ticular purpose — the  Commercial  Treaty  Association  (Handelsver- 
tragsverein)  with  9,000  members  and  150  affiliated  associations. 
Electrical  equipment  is  controlled  by  two  powerful  syndicates,  the 
Allgemeine  Elektricitats  Gesellschaft  and  the  Siemens-Schukert. 

2.     GREAT  BRITAIN'S  IMPERIALISTIC  PLANS1 

1.  The  establishment,  by  government  ownership  or  subsidy,  of 
several  great  lines  of  steamships  connecting  the  parts  of  the  Empire, 
and  an  inter-Imperial  scheme  of  deep-harbor  development  to  accom- 
modate the  ships,  660  feet  long,  with  38-foot  draught,  calculated  to 
have  the  ultimate  practical  economies  of  freight  transportation  which 
would  make  tariff  discrimination  unessential  in  Imperial  preference. 

2.  A  system  of  government  rate  regulation  of  shipping  and  marine 
insurance  on  routes  between  ports  of  the  Empire. 

3.  Government  control  of  at  least  one  independent  telegraph 
and  cable  line  connecting  all  parts  of  the  Empire. 

4.  Government  encouragement  of  an  extensive  program  of  scien- 
tific research  covering  the  production  of  manufacturing  materials 
over  the  Empire  and  the  best  industrial  uses  of  them,  this  research 
extending  also  to  necessary  sources  of  old  and  new  supply  even  outside 
the  Empire. 

5.  An  English  national  and  British  imperial  policy  of  preferential 
employment  of  British  capital  and  British  institutions  in  the  develop- 
ment of  Empire  resources,  including  the  encouragement  of  "home" 
establishments  for  the  primary  treatment  and  the  manufacture  of 
Dominion  ores,  materials,  etc. 

6.  The  foundation  of  the  British  Trade  Corporation,  not  only  to 
assist  in  the  general  expansion  of  British  Commerce  but  to  work  out 
the  financial  phases  of  inter-Imperial  development. 

7.  Intensive  encouragement   of  old  and  new  production  and 
industry  in  the  colonies,  all  parts  of  the  Empire  co-operating  and 
co-ordinating  the  movement. 

8.  An  Empire  policy  of  preference  for  British  industry  everywhere 
in  the  supply  of  raw  materials  of  which  the  Empire  has  a  monopoly 
or  a  dominant  position  in  producing. 

1  ED.  NOTE. — This  is  a  statement  of  the  main  features  of  the  plans  worked 
out  by  the  Dominion's  Royal  Commission  for  the  economic  linking  up  of  Britain 
with  her  colonies.  This  commission  has  been  at  work  since  1912.  Adapted  from 
The  Americas,  February,  1918. 


606  ECONOMICS  OF  WAR 

9.  Empire-wide  exclusion  of  non-British  influence  from  public 
commodity  and  financial  markets. 

10.  Uniformity  of  commercial  laws  in  all  parts  of  the  Empire, 
n.  Reorganization  of  England's  system  of  public  commercial 

intelligence,  including  the  establishment  of  a  new  ministry  of  com- 
merce, a  change  in  the  consular  services,  co-operation  in  exchange  of 
trade  information  with  Dominion  agencies,  and  an  Empire  department 
of  statistical  research. 

12.  Some  measure  of  control  of  British  emigration,  at  least  to  the 
extent  of  assisting  migration  to  British  dominions  and  colonies. 

3.  NEEDED:  AN  ALLIED  ECONOMIC  AGREEMENT1 

In  Lloyd  George's  pronouncements  on  economic  restrictions  to 
be  imposed  upon  Germany  after  the  war  there  is  a  rational  core 
demanding  serious  consideration,  however  little  we  may  like  the 
spirit  that  appears  to  animate  them.  Without  doubt  it  may  be 
necessary  to  place  ourselves  in  a  position  to  impose  drastic  restrictions 
on  German  trade  after  the  war.  Control  of  world-trade  will  be  found 
to  be  one  of  the  chief  bargaining  assets  of  the  Allies  when  peace 
negotiations  are  actually  opened.  Accordingly,  whether  Germany 
is  to  be  admitted  to  equal  participation  in  the  benefits  of  such  trade 
or  to  be  placed  under  more  or  less  severe  handicaps  are  questions  that 
ought  to  remain  open  until  the  proper  time  comes  for  closing  them. 

To  take  the  extreme  liberal  position  and  proclaim  that  when 
peace  comes,  no  matter  on  what  territorial  and  political  terms, 
Germany  shall  automatically  come  into  full  possession  of  equal  trad- 
ing rights  is  also  to  waste  the  allied  assets  at  the  peace  conference. 
Germany  will  make  no  concessions  on  account  of  allied  trade  control 
if  she  is  morally  certain  that  the  world's  markets  will  be  opened  to  her 
for  nothing.  She  knows  perfectly  well  that  unless  the  Allies  can 
present  a  solid  front  in  matters  of  economic  policy  their  control  of 
trade  cannot  extend  beyond  the  period  of  the  war.  Now,  at  the 
present  time  we  are  not  presenting  a  solid  front.  Our  European 
Allies  may  regard  themselves  as  bound  by  the  Paris  Economic  Agree- 
ment, but  as  Lloyd  George  points  out,  America  has  never  subscribed 
to  that  agreement.  Neither  are  our  Latin-American  Allies  bound 
by  it.  If  the  peace  conference  were  convened  tomorrow,  Germany 
would  pretty  certainly  assume  that  the  materials  and  the  markets 

1  Adapted  from  an  editorial  in  The  New  Republic  (August  10,  1918),  pp.  35-36. 


ECONOMIC  FACTORS  IN  AN  ENDURING  PEACE  607 

of  the  greater  part  of  the  western  continent  would  be  accessible  to 
her  if  she  could  finance  her  trade. 

So  long,  then,  as  we  have  not  arrived  at  a  binding  economic 
agreement  with  our  Allies  the  Germans  are  justified  in  regarding 
allied  control  of  trade  as  an  asset  of  doubtful  value,  in  no  way  to  be 
regarded  as  an  equivalent  to  alien  provinces  occupied  by  German, 
armies.  And  this  fact  points  to  a  necessity  for  prompt  action.  We 
cannot  tell  when  Germany  will  make  serious  overtures  for  peace. 
We  know,  however,  that  the  establishment  of  an  economic  agree- 
ment among  all  the  nations  at  war  with  Germany  is  a  work  that 
requires  time,  and  that  this  work  must  be  accomplished  before  peace 
negotiations  are  opened,  if  we  are  to  exploit  the  situation  satisfactorily. 
And  the  initiative  in  the  matter  will  have  to  be  taken  by  America. 
We  do  not  like  the  terms  of  the  Paris  Economic  Agreement,  which 
still  appears  satisfactory  to  our  European  Allies.  Very  well.  What 
terms  do  we  propose?  Lloyd  George  does  not  directly  raise  this 
question,  but  it  appears  to  be  his  obvious  intent  to  suggest  it. 

In  the  first  place,  America  would  probably  be  willing  to  enter 
upon  reasonable  arrangements  with  her  Allies  for  the  control  of  raw 
materials  after  the  war.  There  will  not  be  enough  of  wool,  leather, 
copper,  tin,  and  many  other  materials  to  supply  even  the  immediately 
pressing  needs  of  the  nations  engaged  in  reconstruction.  There  will 
be  a  shortage  of  ocean  carriage,  a  shortage  of  machinery  and  railway 
supplies,  a  shortage  of  wheat  and  meat.  Rationing,  under  govern- 
mental auspices  will  be  an  imperative  necessity.  Under  the  most 
satisfactory  conceivable  peace  terms  we  cannot  permit  Germany  to 
enter  the  world's  markets  with  her  full  power  of  commercial  organiza- 
tion and  wrest  away  supplies  needed  equally  by  allied  nations  more 
seriously  impoverished  by  war  than  Germany  herself.  With  the 
right  kind  of  peace,  Germany  ought  to  get  her  share,  and  only  an 
economic  agreement  thoroughly  worked  out  in  the  near  future  can 
assure  such  an  equitable  arrangement. 

But  suppose  that  the  war  ends  with  Germany  unrepentant, 
clinging  to  enough  of  her  spoils  to  make  plausible  her  claim  to  victory, 
what  should  our  economic  policy  be  ?  Plainly,  the  danger  of  a  recru- 
descence of  world-war  ought  to  be  paramount  in  our  calculations.  We 
ought  to  be  equipped  with  a  thoroughly  elaborated  policy  for  restrict- 
ing German  trade  and  industry  in  every  possible  way.  An  unregen- 
erate  Germany  would  use  wealth  acquired  by  trade  as  a  foundation 
for  future  aggressive  policies.  The  exclusion  of  Germany  from 


608  ECONOMICS  OF  WAR 

world-trade  would  work  incidental  losses  to  other  nations,  and  these 
leases  would  be  unequally  distributed.  For  this  contingency  adequate 
provision  ought  to  be  made  in  the  economic  agreement.  If  Belgium, 
for  example,  finds  herself  permanently  handicapped  by  loss  of  German 
markets  and  the  entrepot  trade,  it  should  be  the  business  of  the  greater 
allied  nations  to  find  her  new  markets,  to  develop  new  possibilities  of 
employment  for  her  population. 

So  far,  in  principle,  America  would  doubtless  be  willing  to  go. 
She  would  enter  upon  a  plan  for  the  equitable  rationing  of  the  nations 
after  the  conclusion  of  a  satisfactory  peace.  She  would  accept  her 
share  in  the  costs  of  an  economic  war  after,  if  Germany  emerges  from 
the  present  contest  puffed  up  with  a  consciousness  of  victory  and 
menacing  the  world  with  new  disasters.  An  agreement  covering 
these  points  would  appear  to  America  both  fair  and  expedient.  But 
an  agreement  going  beyond  this  to  a  purely  punitive  policy,  designed 
to  treat  Germany  the  more  harshly  the  more  completely  she  is  forced 
to  acknowledge  military  defeat,  would  encounter  in  America,  not 
perhaps  active  opposition,  but  all  the  doubts  and  delays  that  char- 
acterize the  negative  side  of  American  policy.  It  is  an  immense 
readjustment  of  ideas  and  institutions  that  is  required  of  America 
before  she  can  participate  in  any  form  of  international  economic 
union.  She  is  likely  to  make  such  a  readjustment  if  the  sound  objects 
of  the  proposed  union  are  infected  with  purely  punitive  purposes.1 

LXVIII.    Territorial  Problems 
i.     GERMANY'S  POSITION  IN  THE  EAST2 

I.      ECONOMIC   INDEPENDENCE 

Though  Germany  has  failed  or  partially  failed  up  to  the  present 
in  the  West  she  has  succeeded  in  the  East;  and  it  must  never  be 
forgotten  that  it  was  with  Eastern,  not  with  Western,  plans  imme- 
diately in  view  that  she  sped  the  Serbian  ultimatum  on  its  way  and 
backed  it  up  by  declaring  war  on  Russia. 

In  this  Eastern  adventure  Germany's  aims  can  be  simply  stated. 
They  are  as  usual  twofold — partly  military  and  partly  economic.  Her 

1  ED.  NOTE. — Cf.  views  of  the  British  Labor  Party,  pp.  664-65. 

2  Adapted  from  The  Round  Table,  March,  1917. 

ED.  NOTE. — The  quotation  in  Section  I  is  from  Dr.  Spiethoff,  professor  of 
political  economy  at  the  German  University  of  Prague,  in  Die  wirtschaftUche 
Anndberung  zwischen  dcm  Deutschen  Reiche  und  seinen  Verbundeten,  I  (1916),  24. 
References  to  quotations  in  Section  II  are  given  in  the  context. 


ECONOMIC  FACTORS  IN  AN  ENDURING  PEACE  609 

military  object  was  and  is  to  secure  a  military  preponderance  in  the 
Old  World  by  establishing  a  supremacy  of  her  arms  over  Central  and 
Eastern  Europe  and  Nearer  Asia.  Her  economic  object  is  clearly 
stated  in  the  following  sentences  from  the  opening  essay  in  an  authori- 
tative work  recently  issued  on  The  Economic  "Rapprochement" 
between  Germany  and  Her  Allies. 

The  establishment  of  a  sphere  of  economic  influence  from  the  North 
Sea  to  the  Persian  Gulf  has  been  for  nearly  two  decades  the  silent,  unspoken 
aim  of  German  policy.  Our  diplomacy  in  recent  years,  which  has  seemed 
to  the  great  mass  of  all  Germans  (including  the  Germans  of  Austria)  vacil- 
lating and  little  conscious  of  its  aim,  only  becomes  intelligible  when  regarded 
as  part  of  a  consistent  Eastern  design.  It  is  to  the  credit  of  Rohrbach  to 
have  shown  in  his  writings  how  the  single  incidents  fit  into  the  general 
scheme  of  our  policy.  It  is  indeed  in  this  region,  and  in  this  region  alone, 
that  Germany  can  break  out  of  her  isolation  in  the  center  of  Europe  into 
the  fresh  air  beyond  and  win  a  compact  sphere  of  economic  activity  which 
will  remain  open  to  her  independently  of  the  favor  and  the  jealousy  of  the 
great  powers.  Apart  from  the  defence  of  hearth  and  home,  no  other 
success  could  compensate  Germany  for  the  enormous  sacrifices  of  the  war 
if  she  did  not  secure  a  really  free  hand,  politically  speaking,  to  pursue  this 
economic  goal.  It  is  true  that  critical  observers  who  have  gone  carefully 
into  the  details  of  the  plan  profess  themselves  skeptical  of  great  economic 
results  and  emphasize  the  fact  that  the  improvement  of  our  relations  with 
these  regions  cannot  compensate  us  for  the  loss  of  our  vitally  important 
connections  with  the  Great  Powers  and  other  states.  They  may  very  well 
be  right.  Nevertheless  it  remains  true  that  a  secure  future  for  Germany 
is  to  be  reached  along  this  road  and  no  other,  and  that  Germany  would  be 
missing  the  greatest  opportunity  ever  offered  or  likely  to  be  offered  her  in 
the  history  of  her  foreign  relations  if  she  were  not  now  to  go  forward  with 
vigor  and  decision  to  its  realization. 

Here  it  is  clearly  shown  that  the  Eastern  aims  in  themselves  will 
not  at  present  meet  Germany's  economic  needs.  If  she  is  no  longer 
to  be  "dependent  on  the  favor  and  the  jealousy  of  the  Great  Powers" 
she  requires  a  colonial  empire  in  the  tropics  as  well.  Nevertheless 
the  Eastern  prize  was  well  worth  following  up. 

II.      BERLIN   TO   BAGDAD 

The  economic  side  of  Germany's  Turkish  program  is  no  less 
important  than  the  military,  and  it  is  around  this  that  controversy 
most  centers.  It  is  best  set  forth  in  a  series  of  quotations. 

The  following  extract  is  taken  from  the  chapter  on  Turkey  in  the 
large  composite  and  obviously  semiofficial  book  on  Germany  and  the 


610  ECONOMICS  OF  WAR 

World  War,  published  in  Berlin  in  1916,  to  which  most  of  the  best- 
known  "political"  professors  have  contributed. 

The  great  problem  of  German-Turkish  relations  is  commonly  summed 
up  in  the  watchword  "Berlin-Bagdad."  Enemy  statesmen  have  discerned 
in  this  the  idea  of  a  German  political  domination.  They  have  spoken  of 
Turkey  as  a  German  province,  or  at  least  contemplated  a  German  "pro- 
tectorate" over  the  Turks.  Berlin  and  Bagdad  are  linked  together  as  the 
termini  of  a  mighty  railroad  that  is  now  nearly  completed — a  line  that  will 
link  up  lands  of  widely  different  economic  conditions  and  render  possible 
an  exchange  between  them  which  will  make  them  independent  of  hostile 
competition,  hostile  attacks,  and,  above  all,  the  command  of  the  sea.  What 
we  have  to  deal  with  then  is  a  great  closed  economic  territory  as  the  basis  of 
political  friendship.  Ah1  the  states  astride  the  line — the  German  industrial 
states  in  the  north,  the  Great  Turkish  agrarian  state  in  the  southeast,  the 
Balkan  States  in  the  center — will  remain  free  to  carry  on  their  own  national 
affairs,  but  they  all  have  the  same  interest  in  exchanging  their  goods  along 
this  artery  of  communication.  Granted  that  in  peace  time  heavy  goods 
will  be  mainly  transported  by  sea  to  save  expense,  yet  the  existing  crisis 
has  shown  us  the  immeasurable  value  of  a  secure  line  of  communication  by 
land,  a  line  which  is  comparable  with  the  great  overland  railways  of  the 
United  States.1 

There  speaks  the  voice  of  the  bourgeoisie  and  the  official  classes. 
Let  us  add  some  representative  testimonies  from  the  working  class. 
In  the  article  already  quoted,  Robert  Schmidt,  a  well-known  Socialist 
member  of  the  Reichstag  and  writer,  says: 

The  peace  which  seems  possible  to  us  today  will  leave  Germany  and  her 
allies  in  the  eyes  of  Europe  as  a  group  of  Powers  whose  sphere  of  economic 
control  extends  from  the  marshes  of  the  Elbe  to  the  waters  of  the  Persian 
Gulf.  Thus  Germany,  in  close  union  with  her  allies,  will  have  won  by  her 
arms  the  kernel  of  a  great  sphere  of  economic  control  worthy  to  be  set  as  a 
closed  economic  system  by  the  side  of  those  of  the  other  world-empires. 

In  1915,  before  the  entry  of  Bulgaria,  a  number  of  leading  German 
trade  unionists  representing  the  chief  industries  of  the  country  pub- 
lished a  book  entitled,  Wording  Class  Interests  and  the  Issue  of  the  War. 
It  was  a  naked  appeal  to  sectional  self-interest  in  harmony  with  the 
dominant  philosophy  of  the  country.  Trade  by  trade  the  German 
workman  is  told  that  defeat  means  ruin  and  victory  more  work  and 
higher  wages.  But  wherever  the  question  of  peace  terms  crops  up 
the  familiar  exposition  of  Eastern  policy  reappears. 

1  Written  by  Dr.  Carl  G.  Becker,  of  Bonn  University. 


ECONOMIC  FACTORS  IN  AN  ENDURING  PEACE  611 

A  German  commercial  policy  which  met  the  needs  of  the  Balkan  States 
and,  above  all,  of  Turkey  would  bring  with  it  invaluable  consequences.  It 
would  bind  those  peoples  more  closely  to  Germany,  because  it  would  offer 
them  mutual  advantages  and  the  possibility  of  cultural  progress.  It  would 
suit  the  interests  of  the  German  consumer,  because  it  would  assure  him  of 
the  import  of  foodstuffs  independently  of  the  sea  and  of  England.  It 
would  also  be  of  advantage  to  our  industries.  The  procuring  of  industrial 
raw  materials  is  extremely  important  for  the  trade  unionist  as  for  the  manu- 
facturer. Already  today  we  are  importing  wool  from  those  regions.  With 
the  improvement  of  methods  of  communication  cotton  production  would 
assume  a  greater  importance  for  Turkey,  to  the  great  advantage  of  the 
Central  Powers.  There  is  no  reason  to  rely  forever  on  the  American  supply 
or  to  be  dependent  on  the  development  of  Africa.  Both  these  sources  can 
be  cut  off  from  the  sea.  The  straight  road  to  Asia  is  open,  however,  if  only 
these  peoples  can  be  interested  in  the  prosperity  of  Germany. 

Let  us  complete  the  picture  by  an  extract  from  the  most  widely 
read,  as  it  is  also  by  far  the  best  written,  of  all  the  books  that  have 
appeared  in  Germany  on  this  subject — a  very  oasis  in  a  desert  of  sand 
— Naumann's  Central  Europe.  Attention  has  already  been  drawn 
in  the  Round  Table  to  the  significance  of  Naumann's  book  in  con- 
nection with  German  domestic  policy.  His  exposition  of  the  under- 
lying meaning  and  philosophy  of  Germany's  Eastern  policy  is  equally 
striking. 

We  have  reached  the  heart  of  the  constitutional  problem  of  Central 
Europe.  It  consists  in  the  marking  ojff  of  national  government  from  economic 
government  and  military  government.  The  distinction  is  fundamental.  We 
started,  it  will  be  remembered,  with  the  idea  of  large-scale  economic  areas. 
The  large-scale  economic  area  of  Central  Europe  must  be  larger  than  the 
existing  states  of  Germany  and  Austria-Hungary.  We  have  refrained,  for 
obvious  reasons,  from  mentioning  the  names  of  neighboring  states  to  be 
brought  in,  merely  stating  in  general  terms  that  further  accessions  are 
necessary.  But  into  what  sort  of  a  union  shall  they  be  brought  ?  The 
answer  is:  a  military  union  and  an  economic  union.  Anything  over  and 
above  this  would  be  superfluous  and  positively  harmful.  In  all  other 
matters  there  must  be  no  derogation  of  political  independence.  It  is 
therefore  vital  to  delimit  the  military  and  economic  functions  so  as  to  work 
them  into  a  new  central  government.  Let  us  take  first  the  latter  side  of  this 
new  union,  or,  if  the  expression  be  preferred,  the  new  economic  state.  This 
economic  state  will  have  its  own  customs  frontiers  just  as  the  military  state 
will  have  its  trench  defences.  Within  these  frontiers  it  will  promote  a  wide 
and  active  interchange  of  commodities.  For  this  a  central  economic  govern- 
ment will  be  required  which  will  be  directly  responsible  for  part  of  the 


612  ECONOMICS  OF  WAR 

economic  arrangements  concerned  and  will  advise  the  national  governments 
as  to  the  remainder.  Customs,  the  control  of  syndicates  or  trusts,  organiza- 
tions for  promoting  exports,  patents,  trade-marks,  etc.,  will  be  under  central 
control.  Commercial  law,  traffic,  policy,  social  policy,  and  similar  matters 
will  be  only  indirectly  within  its  purview.  But  the  supernational  economic 
state,  once  established,  will  steadily  increase  its  powers  and  will  gradually 
evolve  an  administrative  and  representative  system  of  its  own. 

2.     GERMANY'S  COLONIAL  AIMS1 

GERMANY'S  WAR  AIMS 

What  sort  of  a  colonial  empire  did  Germany  hope  to  attain  after 
winning  the  freedom  of  the  seas?  It  is  worth  while  quoting  one 
statement  of  Germany's  colonial  demands,  not  only  because  it  con- 
forms so  closely  to  the  popular  canons,  but  because  it  is  from  the  pen 
of  a  man  who  has  more  than  once  endangered  his  academic  position 
by  the  moderation  of  his  views. 

The  first  and  most  important  of  all  the  national  demands  [says  Professor 
Delbriick]  which  we  shall  have  to -make  when  the  time  comes  for  the  signing 
of  peace  must  be  a  demand  for  a  very  large  colonial  empire,  a  German  India. 
The  empire  must  be  so  big  that  it  is  capable  of  conducting  its  own  defence  in 
case  of  war.  A  very  large  territory  cannot  be  completely  occupied  by  any 
enemy.  A  very  large  territory  wiE  maintain  its  own  army  and  provide 
numerous  reservists  and  second-line  troops.  If  its  main  centers  are  con- 
nected by  rail,  its  different  districts  will  be  in  a  position  to  support  one 
another  in  case  of  need.  A  very  large  territory  can  have  its  own  munitions 
and  arms  factories  A  very  large  territory  will  also  have  harbors  and  coaling 
stations. 

And  he  adds  in  a  footnote,  "in  order  to  prevent  misunderstand- 
ings" and  to  explain  what  he  means  by  "very  large,"  that 

the  Belgian  and  French  Congoes  by  themselves  cannot  suffice  for  the  German 
India  which  we  must  try  to  secure  and  have  a  right  to  demand  after  our 
victories.  This  equatorial  territory  may  provide  us  with  unsuspected 
treasures  in  the  future,  but  so  far  as  the  next  generation  is  concerned  its 
extraordinarily  sparse  population  will  prevent  it  from  being  profitable  to  us ; 
indeed,  it  would  cost  money.  Only  when  the  rich  districts  lying  around  it, 
which  are  now  in  English  hands,  are  added  on  shall  we  have  in  sufficient 
measure  the  practical  prerequisites  for  a  German  India. 

These  are  not  the  day-dreams  of  peace.  These  words  were  written 
in  April,  1915,  after  the  big  check  in  the  West  and  before  the  Eastern 
drive.  The  views  expressed  in  them  are  even  now  not  abandoned. 

1  Adapted  from  the  Round  Table,  March,  1917. 


ECONOMIC  FACTORS  IN  AN  ENDURING  PEACE  613 

Writing  in  the  February  issue  of  a  Berlin  monthly  review,  an  ex- 
governor  of  East  Africa  crosses  the  £'s  and  dots  the  i's  of  Delbruck's 
statement: 

If  Belgium,  as  we  hope  and  as  the  Belgians  hope,  is  to  be  divided  after 
the  war  between  Germany  and  France,  vast  portions  of  the  Belgian  and 
French  Congo  will  have  to  be  included  in  Germany's  colonial  empire,  which 
we  would  then  complete  by  the  acquisition  of  British  East  Africa  and 
Uganda  in  exchange  for  Kiau  Chau,  New  Guinea,  and  the  Australasian 
Islands.  Such  an  empire  could  easily  be  defended  from  the  sea,  and  it 
would  have  to  be  considered  whether  we  could  not  exchange  Togoland, 
which  is  isolated,  for  northern  Rhodesia  and  Nyassaland.  Germany  would 
then  have  a  colonial  Empire  worthy  of  her  enterprising  spirit,  and  it  would 
yield  us  all  the  raw  material  we  need. 

Similarly  the  Frankfurter  Zeitung,  a  conspicuously  moderate 
paper,  two  months  ago  was  still  demanding  "a  compact  colonial 
empire  in  place  of  our  present  haphazard  acquisitions." 

Nor  is  this  attitude  confined  to  the  official  and  bourgeois  classes. 
The  Socialist  majority,  though  shy  about  annexations  in  Western 
Europe,  have  from  the  beginning  associated  themselves  with  "  imperi- 
alist" projects  overseas.  In  an  article  dated  January  17,  1917,  one 
of  their  leading  members,  writing  on  terms  of  peace,  demands  for 
Germany  "an  extensive  colonial  territory  which  will  enable  her  to 
import  from  within  her  own  sphere  of  government  the  tropical 
products  which  cannot  be  grown  on  her  own  soil." 

3.    SUMMARY  OF  BRITISH  WAR  AIMS1 

I.      EUROPE 

Complete  restoration,  political,  territorial,  and  economic,  of  the 
independence  of  Belgium,  and  such  reparation  as  can  be  made  for 
the  devastation  of  its  towns  and  provinces. 

Restoration  of  Serbia,  Montenegro,  and  the  occupied  parts  of 
France,  Italy,  and  Roumania. 

Complete  withdrawal  of  the  alien  armies  and  reparation  for 
injustice  done,  a  fundamental  condition  of  permanent  peace. 

With  the  French  democracy  to  the  death  in  their  demand  for  a 
reconsideration  of  the  great  wrong  of  1871,  when,  without  regard  to 

1  ED.  NOTE. — Statement  of  David  Lloyd  George,  on  January  5,  1918,  after 
consultation  with  the  leaders  of  labor,  representatives  of  the  self-governing 
dominions  of  the  British  Empire,  Mr.  Asquith,  and  Lord  Grey. 


614  •  ECONOMICS  OF  WAR 

the  wishes  of  the  population,  two  French  provinces  were  torn  from 
the  side  of  France  and  incorporated  in  the  German  Empire. 

An  independent  Poland,  comprising  all  those  genuinely  Polish 
elements  who  desire  to  form  part  of  it,  an  urgent  necessity  for  the 
stability  of  Western  Europe. 

Genuine  self-government  on  true  democratic  principles  to  those 
Austro-Hungarian  nationalities  who  have  long  desired  it. 

Satisfaction  of  the  legitimate  claims  of  the  Italians  for  union  with 
those  of  their  own  race  and  tongue. 

Justice  to  men  of  Roumanian  blood  and  speech  in  their  legitimate 
aspirations. 

II.      ASIA   AND  AFRICA 

Constantinople  to  remain  the  Turkish  capital. 

Passage  between  the  Mediterranean  and  the  Black  Sea  to  be 
internationalised  and  neutralised. 

Arabia,  Armenia,  Mesopotamia,  Syria,  and  Palestine  entitled  to 
recognition  of  their  separate  national  conditions. 

German  colonies  held  at  the  disposal  of  a  Conference  whose 
decision  must  have  primary  regard  to  the  wishes  and  interests  of  the 
native  inhabitants  of  such  colonies. 

III.      GENERAL 

Reparation  for  injuries  done  in  violation  of  international  law, 
especially  as  regards  our  seamen. 

The  establishment  by  some  international  organisation  of  an 
alternative  to  war  as  a  means  of  settling  international  disputes. 

4.     RADICAL(  ?)  VIEWS  ON  TERRITORIAL  QUESTIONS 

A.      INTER-ALLIED   LABOR   AND   SOCIALIST   CONFERENCE1 

The  Conference  considers  that  the  proclamation  of  principles  of 
international  law  accepted  by  all  nations,  and  the  substitution  of  a 
regular  procedure  for  the  forceful  acts  by  which  states  calling  them- 
selves sovereign  have  hitherto  adjusted  their  differences — in  short  the 
establishment  of  a  League  of  Nations — gives  an  entirely  new  aspect 
to  territorial  problems. 

The  old  diplomacy  and  the  yearnings  after  domination  by  states, 
or  even  by  peoples,  which  during  the  whole  of  the  nineteenth  century 

1  ED.  NOTE. — This  is  a  statement  of  the  Inter-Allied  Labor  and  Socialist 
Conference,  held  February'  20-24,  1918,  Central  Hall,  Westminster,  London. 


ECONOMIC  FACTORS  IN  AN  ENDURING  PEACE  615 

have  taken  advantage  of  and  corrupted  the  aspirations  of  nation- 
alities, have  brought  Europe  to  a  condition  of  anarchy  and  disorder 
which  have  led  inevitably  to  the  present  catastrophe. 

The  Conference  declares  it  to  be  the  duty  of  the  Labour  and  Social- 
ist Movement  to  suppress  without  hesitation  the  Imperialist  designs 
in  the  various  states  which,  even  in  this  war,  have  led  one  government 
after  another  to  seek,  by  the  triumph  of  military  force,  to  acquire 
either  new  territories  or  economic  advantages. 

The  Conference  is  of  opinion  that  the  main  lines  of  marine  com- 
munication should  be  open  without  hindrance  to  vessels  of  all  nations 
under  the  protection  of  the  League  of  Nations.  It  declares  against 
all  the  projects  now  being  prepared  by  Imperialists  and  capitalists, 
not  ih  any  one  country  alone,  but  in  most  countries,  for  an  Economic 
War,  if  begun  by  any  country,  would  inevitably  lead  to  reprisals,  to 
which  each  nation  in  turn  might  in  self-defense  be  driven.  The 
Conference  realizes  that  all  attempts  at  economic  aggression,  whether 
by  protective  tariffs  or  capitalist  trusts  or  monopolies,  inevitably 
result  in  the  spoliation  of  the  working  classes  of  the  several  countries 
for  the  profit  of  the  capitalists;  and  the  working  class  see  in  the 
alliance  between  the  Military  Imperialists  and  the  Fiscal  Protection- 
ists in  any  country  whatsoever  not  only  a  serious  danger  to  the 
prosperity  of  the  masses  of  the  people,  but  also  a  grave  menace  to 
peace.  On  the  other  hand,  the  right  of  each  nation  to  the  defence  of 
its  own  economic  interests,  and,  in  face  of  the  world-shortage  herein- 
after mentioned,  to  the  conservation  for  its  own  people  of  a  sufficiency 
of  its  own  supplies  of  foodstuffs  and  raw  materials,  cannot  be  denied. 
The  Conference  accordingly  urges  upon  the  Labour  and  Socialist 
parties  of  all  countries  the  importance  of  insisting,  in  the  attitude  of 
the  government  toward  commercial  enterprise,  along  with  the  neces- 
sary control  of  supplies  for  its  own  people,  on  the  principle  of  the  open 
door,  and  without  hostile  discrimination  against  foreign  countries. 
But  it  urges  equally  the  importance,  not  merely  of  conservation,  but 
also  of  the  utmost  possible  development  by  appropriate  government 
action  of  the  resources  of  every  country  for  the  benefit,  not  only  of 
its  own  people,  but  also  of  the  world,  and  the  need  for  an  international 
agreement  for  the  enforcement  in  all  countries  of  the  legislation  on 
factory  conditions,  a  maximum  eight-hour  day,  the  prevention  of 
"sweating,"  and  unhealthy  trades  necessary  to  protect  the  workers 
against  exploitation  and  oppression,  and  the  prohibition  of  night  work 
by  women  and  children. 


6l6  ECONOMICS  OF  WAR 

B.      FRENCH   SOCIALIST   VIEWS   ON   COLONIAL  POLICY1 

Not  all  the  peoples  of  the  world  have  reached  a  stage  of  culture, 
political  maturity,  and  economic  development  which  entitles  them  to 
become  sovereign  states.  Unhappily,  international  congresses  have 
given  no  indication  as  to  the  course  to  be  taken  with  regard  to  what 
may  be  called  the  non-adult  peoples.  They  only  warn  us  against 
"capitalist  colonial  policy."  But  we  know  well  enough  that  capital- 
ism, whatever  may  be  the  method  adopted  for  joining  or  not  joining 
these  peoples  to  the  European  States,  will  always  have  freer  scope 
among  them  than  elsewhere.  The  problem  is  to  find  a  means  of 
ensuring  that  this  capitalist  colonial  policy  shall  be  controlled  in  the 
most  effective  manner  possible;  and  of  guaranteeing  the  fullest 
possible  self-government  to  colonies  and  protectorates  when  they 
have  developed  sufficiently. 

We  do  not  think  that  colonial  and  protectorate  countries  can  be 
left  to  themselves,  and,  as  for  distributing  colonies,  we  do  not  know 
what  principles  to  adopt  for  our  guidance.  We  willingly  assent  to 
the  proposal  that  her  colonies  should  be  restored  to  Germany. 

We  hope  that  the  Socialist  parties  will  make  a  particular  point 
of  giving  close  attention  to  colonial  questions.2 

1  Adapted  from  The  French  Socialist  Party  and  War  Aims.     (George  H.  Doran 
Co.,  New  York,  1918.) 

2  ED.   NOTE. — Cf.   President   Wilson's   statement   of   the   Program  of   the 
World's  Peace,  p.  666. 


XVI 
AFTER-THE-WAR  PROBLEMS 

Introduction 

The  war  is  but  a  stage  in  a  continuous  process  of  economic  and 
social  development.  With  its  termination  will  come  no  end  of  change 
and  no  cessation  in  the  need  of  controlling  development.  On  the 
contrary,  there  will  gradually  emerge  a  new  situation,  new  problems, 
and  the  need  of  many  new  adjustments.  The  resources  of  the 
country,  the  organization  of  industry,  and  the  services  of  the  people 
which  have  been  used  for  a  single  military  end  will  have  to  be  made  to 
serve  other  purposes. 

With  the  larger  problem  of  the  control  of  the  transition  to  peace 
many  questions  are  allied.  The  accommodation  of  industrial  life 
to  the  demands  of  peace  requires  many  physical  adjustments.  Our 
army  must  be  returned  from  France,  four  or  five  million  men  must 
be  absorbed  into  industry,  the  wear  and  tear  of  the  war  in  plant  and 
equipment  must  be  replaced,  and  capital  must  be  found  for  the  con- 
version to  new  uses  of  plants  supplying  the  government  with  goods  of 
an  annual  aggregate  value  of  more  than  ten  billion  dollars.  But  these 
mechanical  changes  are  contingent  upon  the  solution  of  far  more 
complicated  problems.  They  must  wait  upon  the  nature  and  terms 
of  the  coming  peace;  the  establishment  of  an  international  under- 
standing about  credits,  raw  materials,  and  markets;  the  formulation 
of  a  plan  for  securing  the  incorporation  of  labor  and  plants  now  used  for 
war  work  into  the  industrial  system;  and  the  rede  termination  of 
industrial  relations  between  employer  and  employees.  Even  these 
problems  are  further  complicated  by  the  course  of  events  which  has 
attended  the  war.  The  establishment  of  new  industrial  standards, 
the  enlarged  domain  of  control,  the  changes  in  personal  habits,  and 
the  newer  conceptions  of  what  is  worth  while  in  national  and  indi- 
vidual life  have  read  themselves  into  the  popular  conception  of  each  of 
these  problems  and  must  condition  alike  its  statement  and  solution. 

It  is  not  the  purpose  of  the  readings  which  follow  to  enumerate  the 
after-the-war  problems,  to  resolve  them  into  their  elements,  or  to 
present  even  tentatively  their  solutions.  An  understanding  of  them 

617 


6l8  ECONOMICS  OF  WAR 

cannot  be  reduced  to  a  few  definite  and  general  principles  as  were  the 
problems  of  the  economics  of  war.  Some  of  them  are  the  age-old 
problems  of  group  and  class  and  income  which  were  with  us  long 
before  the  war  and  bid  fair  to  abide  for  many  a  decade.  Others  are 
old  problems  such  as  that  of  maximum  production  from  limited 
resources,  seen  afresh  through  the  new  vision  which  the  war  has 
brought.  Still  others,  such  as  the  international  organization  of 
credits  and  raw  materials,  seem  to  be  new.  But,  old  or  new,  the  war 
has  thrown  them  into  a  new  situation;  they  require  fresh  analysis 
and  defy  solution  by  ready-made  formulas.  Further, '  compared 
with  the  simple  end  of  military  efficiency  which  underlies  the  war- 
time organization  of  industry,  the  peace  ends,  which  condition  the 
solution  of  all  these  problems,  have  the  variety  and  subtlety  of 
bewildering  complexity. 

This  chapter,  therefore,  can  do  little  more  than  give  some  per- 
spective of  the  problems  of  the  coming  peace,  indicate  the  dangers  in 
allowing  it  to  come  upon  us  unawares,  and  point  to  the  necessity  of 
an  intelligent  attempt  to  meet  them.  Toward  these  very  finite 
ends  it  is  resolved  into  three  parts.  The  first  attempts  to  reveal  by 
statement  and  illustration  the  nature  of  the  larger  problem  of  the 
transition  to  peace  of  which  particular  problems  are  mere  aspects. 
The  second  has  the  double  end  of  translating  this  general  statement 
into  the  particular  terms  of  a  single  definite  and  tangible  problem 
and  of  revealing  the  most  immediate  of  the  after-the-war  problems 
with  which  we  shall  have  to  deal.  The  third  seeks  to  present  in  some 
typical  examples  evidence  of  the  less  immediate  issues  which  the  war 
has  raised  and  which  have  to  be  taken  into  account  in  dealing  with 
even  the  most  immediate  questions. 

A  solution  to  these  enigmas  is  not  to  be  found  now.  If  their 
baffling  uncertainty  could  be  reduced  to  definite  formulas,  interest 
in  them  would  be  robbed  of  the  daring  sense  of  an  intellectual  adven- 
ture. This  we  can  know:  If  as  a  nation  we  stumble  upon  peace 
unawares,  there  are  grave  perils  for  us,  entailing  a  toll  of  costs  to  be 
paid  for  generations  to  come.  If,  on  the  contrary,  by  taking  thought 
for  the  morrow,  the  crisis  is  met  fearlessly  and  intelligently,  serious 
trouble  can  be  avoided.  The  problem  is  fundamentally  one  of 
understanding.  Properly  directed  development  is  a  growth;  it  is 
not  born  of  tinkering.  If  as  a  nation  we  approach  the  coming  crisis 
in  a  spirit  of  right-mindedness  and  intellectual  adventure — we  shall 
see  what  we  shall  see. 


AFTER-THE-WAR  PROBLEMS  619 

LXIX.    The  Nature  of  the  Problem 

i.    REASONS  FOR  RECONSTRUCTION  PROPOSALS  IN 
GREAT  BRITAIN1 

The  first  reason  for  the  agitation  of  industrial  reorganization  in 
England  is  that  unrest  in  the  industrial  population  has  been  con- 
stantly increasing.  A  well-informed  London  correspondent  says 
mildly:  "Some  people  have  even  developed  a  habit  of  talking  of 
revolution  in  Britain  as  if  it  were  a  matter  of  course,  this  group  being 
divided  between  those  who  declare  it  will  come  during  the  war  and 
those  who  regard  it  as  a  matter  of  certainty  after  the  war."  The 
causes  of  this  revolutionary  spirit  are  to  a  certain  extent  identical 
with  the  causes  which  have  lent  impetus  to  the  discussion  of  recon- 
struction. The  fear  of  the  workers  that  trade-union  standards  will 
not  be  restored,  their  hostility  to  the  compulsory  arbitration  required 
by  the  Munitions  Act,  the  growing  separation  between  the  rank  and 
file  of  labor  and  its  leaders — these  have  all  created  uneasiness  in 
working-class  circles  and  have  turned  the  thought  of  the  workers  to 
ways  and  means  of  preventing  a  return  to  the  pre-war  industrial 
system,  or  at  least  to  those  features  of  it  which  were  most  objection- 
able to  them. 

In  the  second  place,  it  is  probable  that  the  power  now  possessed  by 
the  "Triple  Alliance"  of  trade  unions  is  making  the  employers  ponder 
the  feasibility  of  some  better  system  of  checks  and  balances  in  the 
government  of  industry  than  is  now  known.  For  this  alliance,  com- 
posed of  nearly  two  million  employees  of  the  railroads,  the  docks,  and 
the  coal  mines,  is  in  a  position  to  cripple  the  traffic  of  the  islands  if  it 
determines  to  make  a  stand  in  behalf  of  its  demands.  Whenever 
labor  has  the  balance  of  power,  employers  become  suddenly  interested 
in  the  creation  of  parliamentary  machinery  for  the  amicable  adjust- 
ment of  disputes. 

A  <hird  incentive  to  thought  on  reconstruction  comes  from  the 
grave  problems  of  demobilization,  which  are  already  being  taken  up 
on  every  side.  In  some  way  the  reabsorption  of  nearly  five  million 
soldiers  will  have  to  be  effected,  while  simultaneously  munition  plants 
will  have  to  be  diverted  to  the  manufacture  of  other  products  and  a 
policy  of  reconstruction  worked  out. 

'By  Ordway  Tead.  Adapted  from  "Some  Reconstruction  Programs," 
Political  Science  Quarterly  (March,  1918),  pp.  56-58. 

ED.  NOTE. — Mr.  Tead  is  a  prominent  American  student  of  labor  problems. 


620  ECONOMICS  OF  WAR 

There  is,  fourth,  the  impetus  which  the  guild  socialists  have  given 
to  the  study  of  drastic  reforms.  They  are  avowedly  anxious  that,  if 
possible,  a  transition  to  the  national  guild  system  be  effected,  or  at 
least  begun,  immediately  after  the  war.  Their  analysis  of  the  needs 
of  the  hour  has  been  well  expressed  thus:  "The  factors  to  be  con- 
ciliated by  the  new  social  contract  are  (a)  a  more  or  less  blind  revolt 
against  degrading  conditions;  (b)  the  imperative  necessity  of  a  more 
scientific  efficient  system  of  production;  (c)  the  call  for  a  higher 
spiritual  and  moral  life;  and  (d)  a  revivified  passion  for  freedom. 

Fifth,  the  urgent  need  of  reconstruction  is  being  pressed  by  those 
concerned  for  high  productivity  and  therefore  for  "harmony "and 
"  co-operation  "  in  industry.  Stress  is  laid  on  the  fact  of  the  low  per 
capita  output  of  British  workers  compared  with  those  of  Germany 
and  the  United  States;  and  limitation-of-output  policies  are  con- 
demned from  every  angle.  Those  who  approach  the  industrial 
problem  in  this  way  are  actuated  by  various  motives.  There  is  one 
motive,  however,  so  sharply  differentiated  from  the  rest  that  it  really 
becomes  a  separate  cause  of  the  reconstruction  agitation,  and  should 
therefore  be  separately  mentioned. 

This  sixth  cause  is  the  desire  for  the  imperial  supremacy  of 
England,  an  end  to  be  gained  by  greatly  increased  production  at  a 
minimum  cost  per  unit  of  product.  This  reason  is  to  be  met  in  public 
utterances  from  widely  different  sources. 

From  every  quarter,  therefore,  from  labor-conservative  and 
labor-radical,  from  employer  and  statesman,  has  come  explicit  state- 
ment that  the  industrial  institutions  of  England  are  "rotten-ripe  for 
change."  Is  it  to  be  wondered  at  that  from  a  dozen  directions  at 
once  have  sprung  programs  and  schemes  of  reorganization?  The 
remarkable  thing  is  rather  that  these  have  been  so  few  and  that  they 
have  with  one  or  two  exceptions  followed  so  uniformly  along  the  same 
lines. 

2.     THE  FACTORS  IN  THE  PROBLEM1 

The  discussion  above  makes  it  evident  that  the  problem  of  the 
transition  to  a  status  of  peace  is  no  mere  problem  of  a  "return." 
An  intelligent  approach  to  it  is  conditioned  upon  a  clear  understanding 
that  it  is  not  and  cannot  possibly  be  the  problem  of  the  restoration  of 
the  scheme  of  things  existing  on  August  3,  1914,  or  on  April  6,  1917. 

The  war  has  brought  in  its  wake  many  new  things  which,  however 
unexpected,  cannot  be  escaped.  The  course  of  our  development  is  an 

1  An  editorial. 


AFTER-THE-WAR  PROBLEMS  621 

ever-changing  one.  The  course  of  events  enables  us  to  discover 
hitherto  unknown  factors  which  are  shaping  our  development,  which 
have  to  be  taken  into  account  in  any  intelligent  attempt  to  accom- 
modate our  lives,  individually  and  collectively,  to  the  circumstances 
under  which  they  must  be  lived.  It  is  too  early  and  we  are  at  too 
close  a  range  as  yet  to  get  a  clear  perspective  of  these  new  things,  or 
old  things  which  look  new.  Yet,  without  a  pretense  of  making  a 
catalogue,  some  of  these  factors  may  well  be  presented  for  the  light 
which  they  throw  upon  the  nature  of  the  transition  problem. 

Let  us  take  as  a  first  example  the  impulse  which  the  war  has  given 
toward  supplying  modern  industrial  society  with  agencies  of  organiza- 
tion suitable  to  its  needs.  It  has  been  with  no  conscious  design  and  in 
terms  of  no  preconceived  plan  that  a  nation  made  up  of  a  large  number 
of  small  rural  communities  was  converted  into  a  vast  and  intricate 
industrial  society.  So  it  is  not  surprising  that  thought  was  not  taken 
that  the  nation  should  be  supplied  with  the  machinery  necessary  to  the 
organization  of  its  industrial  life.  A  great  deal  of  this  belated  machin- 
ery the  war  is  supplying.  To  cite  an  example,  it  is  hardly  reasonable 
to  think  of  abandoning  a  unified  railroad  system,  and  returning  to  a 
loose  aggregate  of  individual  lines,  which  involve  much  duplication 
of  service  and  equipment,  which  were  planned  with  little  reference 
to  each  other,  and  which  were  built  for  a  variety  of  reasons,  running 
from  sound  investment  to  the  most  reckless  speculation. 

Or,  to  cite  another  example,  we  can  hardly  think  of  an  abandon- 
ment of  the  organization  of  the  labor  market,  which  just  now  is  in 
process  of  fulfilment.  For  decades  one  of  our  most  serious  problems 
has  been  that  of  getting  men  and  jobs  together.  On  the  mere  quanti- 
tative side  we  have  been  fairly  successful,  perhaps  too  successful,  if 
judged  by  the  number  of  contacts  which  have  been  established;,  for 
as  the  statistics  of  "labor  turnover"  so  clearly  indicate,  the  problem 
has  been  too  habitually  solved  by  getting  square  pegs  into  round  holes. 
A  retention  of  these  and  like  devices  for  organization  involves  no  clear- 
cut  clash  between  group  interests.  They  are  mechanisms  necessary 
to  the  full  utilization  of  resources  and  the  avoidance  of  waste.  In  a 
way  they  are  not  due  to  the  war;  for  they  involve  the  accentuation  of 
tendencies  clearly  discernible  before  the  war  began.  Their  impor- 
tance, for  our  problem,  is  evidenced  by  the  thousand  and  one  ques- 
tions of  their  use  which  their  very  existence  inevitably  causes  to  be 
raised.  The  presence  of  such  agencies  and  organizations  mean  that 
the  return  of  men  and  materials  will  be  effected  under  an  organization 


622  ECONOMICS  OF  WAR 

much  better  established  than  the  one  which  we  had  when  we  went 
to  war. 

The  discussion  of  organization  suggests  that  the  war  is  bringing 
with  it  an  increased  consciousness  of  our  common  dependence  upon 
each  other  and  of  individual  responsibility  for  the  common  good. 
Perhaps  we  believe  as  strongly  as  we  did  before  the  war  that  "the 
individual  shall  be  free  to  do  as  he  pleases  so  long  as  he  does  not 
interfere  with  the  rights  of  other  individuals  to  do  as  they  please." 
But  the  real  meaning  of  this  axiom  lies  in  its  balance  between  one's 
own  rights  and  the  rights  of  others.  A  few  decades  ago  lotteries, 
public  drunkenness,  and  even  political  corruption  were  defended  upon 
the  first  ground.  Latterly  the  tendency  has  been  to  place  increased 
emphasis  upon  the  rights  of  others  and  to  insist  that  "individual 
liberty"  must  be  amenable  to  the  common  good.  The  acceptance  of 
the  principle  of  universal  conscription,  and  a  willingness  to  have  a 
large  share  of  one's  income  conscripted  for  a  public  purpose  are  but 
isolated  cases  of  a  nation-wide  subordination  of  private  to  public  good 
and  to  the  necessity  of  control  directed  to  the  common  end. 

Implicit  in  this,  but  deserving  of  separate  statement,  is  the  clear 
conception  of  what  may  be  called  national  economy,  which  has  been 
brought  home  to  the  people  at  large.  Through  the  food  administra- 
tion our  people  have  learned  that,  however  large  the  whole  food  supply, 
it  is  yet  limited  as  compared  with  the  uses  to  which  we  would  put  it, 
and  that  waste  or  extravagance  by  one  person  is  taking  food  away 
from  another. 

Likewise,  the  war  is  bringing  home  to  the  masses  the  relationship 
of  the  individual's  work  to  the  total  wealth  of  the  nation.  They  are 
beginning  to  see  that  the  result  of  the  day's  work  is  not  a  mere  wage 
and  that  the  two  do  not  constitute  an  industrial  whole,  separate  and 
apart;  but  that,  on  the  contrary,  any  restriction  of  output  or  with- 
holding of  productive  effort,  "conscientious"  or  otherwise,  is  reducing 
the  total  wealth  of  the  nation,  which  can  never  be  large  enough  for 
all  its  needs. 

Even  more  important  is  the  distinction  which  the  war  is  establish- 
ing between  business  and  industry,  between  work  and  effort  which  is 
directed  at  profits  and  that  which  adds  to  the  volume  of  the  good 
things  of  life.  Here  it  may  be  insisted  that  the  feeling  of  solidarity 
of  which  these  instances  are  mere  examples  is  but  of  the  war  and  for 
the  war,  and  that  since  it  will  lapse  with  the  war  it  need  not  be  taken 
into  account  in  considering  the  problem  of  the  transition  to  a  state 


AFTER-THE-WAR  PROBLEMS  623 

of  peace.  In  reply  it  can  be  said  that  this  new  feeling  is  but  the  con- 
summation of  a  tendency  clearly  in  evidence  before  the  war.  The 
problem  which  it  raises  is  that  of  transferring  the  feeling  established 
by  the  effects  of  the  war  from  a  nation  at  war  to  a  nation  at  peace, 
and  of  reading  it  into  the  new  order  of  things.  This  problem  offers  a 
challenge  which  cannot  be  escaped.  To  allow  a  sentiment  of  such 
value  to  lapse  without  a  conscious  and  determined  effort  to  hold  and 
use  it  would  be  nothing  short  of  criminal. 

In  this  country  the  ideal  of  large  national  output  is  beginning  to 
lead  to  the  employment  of  women  in  trades  formerly  closed  to  them, 
to  the  dilution  of  skilled  with  unskilled  labor,  and  to  a  breaking  down 
of  the  tradition  which  has  kept  skilled  labor  upon  unskilled  work. 
While  as  yet  the  change  is  small,  the  experience  of  England  shows  the 
lengths  to  which  it  may  go  and  the  size  of  the  problem  with  which  we 
shall  have  to  deal  if  the  struggle  is  a  protracted  one.  The  importance 
of  large  output  is  also  rapidly  teaching  the  American  people  the 
necessity  of  a  careful  conservation  of  the  health,  strength,  and  general 
physical  efficiency  of  labor.  The  result  is  that  the  sheer  necessity  of 
turning  out  munitions  in  large  volume  is  leading  to  a  reconsideration 
of  hours  of  labor  and  a  general  revision  of  living  and  working  condi- 
tions among  laborers  employed  on  government  contract.  Thus,  the 
national  needs  of  large  production  are  rapidly  accomplishing  a  reform 
which  it  would  have  taken  decades  to  effect  in  a  system  where  all 
changes  were  considered  simply  with  an  eye  to  the  immediate  profits 
they  might  bring  unimaginative  employers.  The  latter  change  in 
this  country  is  beginning  to  be  associated  with  an  inclusion  of  repre- 
sentatives of  the  laborers  in  the  management  of  industry,  an  innova- 
tion which  seems,  in  some  places,  at  least,  to  have  been  accompanied 
by  a  decided  improvement  in  the  laborers'  attitude  towards  his  work 
and  with  a  stimulus  to  his  mind  to  devise  ways  for  accomplishing 
given  tasks  more  economically.  It  is  futile  to  insist  that  what  has 
been  done  and  learned  here  can  be  erased  and  that  a  return  can  be 
made  to  pre-war  conditions.  But,  on  the  contrary,  if  these  and  like 
changes  are  considered,  it  is  evident  that  they  bristle  with  problems 
in  which  neither  the  facts  are  well  known,  nor  are  future  policies  clear 
beyond  peradventure. 

In  the  realm  of  finance,  too,  problems  are  essentially  new.  Our 
tax  policy,  with  its  emphasis  upon  levies  upon  income  and  excess 
profits,  is  full  of  innovations  as  regards  the  nature  of  the  taxes,  the 
groups  upon  which  their  incidence  falls,  and  their  avowed  use  for 


624  ECONOMICS  OF  WAR 

purposes  of  control.  Yet,  despite  their  novel  character,  they  are  but 
extensions  of  a  new  theory  of  taxation  which  is  implicit  in  the  tax 
legislation  of  the  first  Wilson  administration.  They  seem  to  have 
disproved  the  argument  so  generally  accepted  before  the  war  that 
taxes  of  such  a  nature  and  magnitude  would  kill  "business  enterprise," 
and  a  democracy  which  has  learned  to  use  them  is  not  likely  easily  to 
be  stripped  of  weapons  so  effective.  Our  currency  and  banking 
problems,  too,  demand  a  fresh  approach.  Not  only  has  the  price- 
level  been  radically  changed  from  that  which  obtained  in  the  spring 
of  1917,  but  its  various  elements  are  related  to  each  other  in  such  a 
way  as  to  make  the  relative  incomes  of  individuals  and  groups  very 
different  from  those  formerly  obtained,  thus  changing  for  better  or 
for  worse  their  social  positions.  It  is  idle  to  insist  that  the  steps  which 
have  brought  this  about  can  be  retraced.  If,  as  a  result  of  changing 
prices,  the  standards  of  life  and  social  positions  have  been  disturbed 
to  the  disadvantage  of  groups  that  should  fare  better,  the  problem  of 
adjustment  will  have  to  be  directly  faced. 

Another  aspect  of  the  price-level  raises  a  new  and  difficult  series 
of  problems.  Because  of  the  variety  of  means  employed  by  -the 
several  warring  nations  in  financing  the  war  and  the  restrictions  upon 
freedom  of  exchange  which  under  ordinary  conditions  is  depended 
upon  to  adjust  price-levels  among  them,  the  price-levels  are  badly 
out  of  harmony.  A  conscious  attempt  to  understand  what  is  involved 
in  this  and  to  devise  measures  for  dealing  with  it  is  imperative.  And, 
lastly,  the  fundamental  conditions  of  foreign  trade  have  been  affected, 
for  better  or  for  worse,  not  only  by  the  break-up  of  establishments 
carrying  it  on,  the  diversion  of  ships  to  other  uses,  and  the  loss  of 
organization,  but  also  by  the  building  of  new  ships,  changes  in  the 
industrial  systems  of  the  belligerent  countries,  and,  last  but  by  no 
means  unimportant,  by  changes  in  the  minds  of  the  people  in  their 
regard  for,  or  their  distrust  of,  other  nations.  Whether  or  not  con- 
sideration be  given  to  the  changing  mind  of  the  people,  the  very 
definite  changes  which  have  accompanied  it  and  the  host  of  problems 
which  they  raise  demand  an  approach  to  the  problem  of  the  transition 
to  peace  as  something  far  larger  and  more  complex  than  a  simple 
problem  of  "resumption." 

It  must  be  added  here,  that  the  longer  the  war  is  continued,  and 
the  more  thoroughly  the  scheme  of  arrangements  and  habits  of  thought 
which  it  inspires  becomes  habitual,  the  greater  will  be  the  necessity 
for  a  consideration  of  these  things  in  formulating  a  program  for  the 
transition  to  peace. 


AFTER-THE-WAR  PROBLEMS  625 

In  contrast  with  the  problem  of  getting  a  nation  satisfactorily 
back  to  a  peace  basis,  the  problem  of  preparation  for  war  is  simplicity 
itself.  In  the  latter  case  the  end  to  be  achieved  is  a  direct  one.  A 
nation  has  a  limited  amount  of  labor,  materials,  equipment,  and  other 
resources.  The  problem  is  to  divert  as  large  a  part  of  this  as  possible 
into  a  surplus  which  can  be  used  to  arm,  equip,  and  hurl  at  the  enemy 
a  military  force  large  enough  to  overcome  his.  The  end  of  an  organi- 
zation for  peace  has  no  such  simplicity.  It  is  not  to  turn  out  the 
largest  possible  aggregate  of  goods  useful  for  a  single  end.  On  the 
contrary,  it  is  bound  up  with  a  clash  between  the  immediate  interests 
of  the  several  competing  groups  which  make  up  the  nation,  between 
the  more  immediate  and  the  less  immediate  interests  of  these  groups, 
and  between  the  desires  of  these  various  groups  and  an  ideal  of  what 
is  best  for  society  as  a  whole.  But  this  question  is  as  important  as 
it  is  nebulous.  It  might  be  fairly  easy  to  settle  it  in  terms  of  the 
production  of  the  largest  aggregate  of  wealth  as  measured  in  pecuniary 
terms  or  in  terms  of  largest  physical  output.  But  the  problem  with 
which  we  are  confronted  must  consider  the  kinds  of  goods  produced  as 
well  as  their  quantity;  it  must  give  attention  to  the  uses  to  which 
they  are  put  as  well  as  their  volume;  it  must  keep  in  view  its  dis- 
tribution between  groups  as  well  as  its  appearance  in  the  statistics  of 
national  income.  It  needs  to  consider  that  there  is  a  social  account- 
ancy in  which  human  utilities  and  costs  are  to  be  assessed  and 
measured,  as  well  as  a  pecuniary  accountancy  in  which  money  debits 
and  credits  of  individual  businesses  are  marked  up.  This  end  may  be 
vague,  nebulous,  and  at  best  a  concept  which  can  be  barely  approxi- 
mated; but  its  vague  character  makes  all  the  more  necessary  an 
attempt  to  come  by  it  intelligently.  With  it  something  is  at  hand  to 
give  at  least,  a  semblance  of  unity  to  a  program  which  otherwise  will 
be  nothing  but  a  jumbled  heap  of  fragments.  In  approaching  the 
problem  of  the  transition  to  a  status  of  peace,  as  in  other  matters,  it 
is  well  to  remember  the  new  adage,  "He  who  knoweth  not  what  he 
seeketh,  understandeth  not  what  he  findeth." 

An  intelligent  approach  to  the  problem  requires  an  appreciation 
'alike  of  its  unity  and  of  its  resolution  into  a  large  number  of  comple- 
mentary inquiries.  The  first  of  these  demands  that  the  general  work 
of  direction  and  the  ultimate  formulation  of  a  program  be  vested  in  a 
single  person  or  an  independent  body.  The  second  requires  the  use 
of  persons,  agencies,  and  institutions  who  know  the  subject-matter 
of  particular  inquiries  well  enough  to  give  the  expert  assistance 
necessary. 


626  ECONOMICS  OF  WAR 

The  argument  for  single  direction  of  study  and  formulation  of  a 
program  rests  upon  the  unity  of  the  problem.  This  unity  is  perhaps 
apparent  from  the  discussion  of  the  nature  of  the  problem  given 
above.  It  has,  however,  other  supports  which  require  a  brief 
enumeration  at  this  point. 

Almost  any  problem  of  making  the  transition  to  peace  involves  a 
large  number  of  other  problems.  To  cite  a  particular  example,  it  is 
necessary  that  the  large  amount  of  capital  tied  up  in  shipping  shall 
be  used  productively  when  the  war  is  over.  To  avoid  scrapping  the 
wealth  which  this  investment  represents,  the  ships  must  be  used 
either  in  coastwise  trade  or  in  foreign  commerce.  Whether  the 
railroads  alone  can  take  care  of  the  greater  part  of  our  domestic 
commerce  after  the  war  is  over,  whether  the  use  of  the  ships  may  be 
made  to  avoid  a  vast  expenditure  upon  railroad  development,  or 
whether  their  slowness  and  the  expense  of  transshipment  which  they 
entail  are  such  as  to  confine  their  use  to  a  very  limited  class  of  freight 
are  questions  which  require  examination.  Likewise,  the  use  of  ships 
in  foreign  commerce  depends  upon  the  foreign  commercial  policy  after 
the  war,  a  matter  that  is  contingent  upon  the  terms  of  peace,  our 
tariff  policy,  research  in  foreign  trade,  etc.  It  is  needless  to  say  that 
the  departments  of  the  government  to  which  these  detailed  subjects 
properly  relate  must  be  used  both  in  gathering  the  facts  and  in  formu- 
lating policies.  But  it  is  manifest  that  the  supervision  of  study  and 
formulation  of  a  program  require  unity  of  direction  from  some  external 
source. 

All  the  particular  problems  of  the  transition  period  have  their 
being  within  a  common  environment  and  their  solutions  must  be 
found  within  the  limits  which  that  environment  allows.  Not  only 
are  they,  as  we  have  seen,  directly  related  one  to  another,  but  they 
are  indirectly  related  to  each  other  through  their  dependence  upon  a 
common  scheme  of  life.  An  enumeration  of  a  number  of  the  general 
conditions  to  which  particular  proposals  must  conform  will  make 
clear  this  dependence. 

An  intelligent  study  of  the  problem  must  proceed  in  terms  of  a 
national  society.  At  the  end  of  the  Civil  War  there  was  an  abundance 
of  free  land;  the  nation  consisted  largely  of  an  aggregate  of  semi- 
independent  agrarian  communities,  and  everywhere  industrial 
opportunities  were  underutilized.  If  in  the  Northeast  manufacturing 
was  springing  up  and  life  was  becoming  increasingly  urban,  the 
industrial  openings  were  many  and  there  was  still  abundant  room  in 


AFTER-THE-WAR  PROBLEMS  .        627 

the  West.  Now  the  small  community  which  lives  by  itself  is  gone; 
the  economic  system  has  become  increasingly  industrial,  pecuniary, 
and  urban.  The  interests  of  men  run  largely  in  terms  of  occupations, 
of  industries,  of  particular  groups.  In  addition,  the  single  complex 
organization  which  is  our  industrial  system  has  grown'  in  defiance  of 
state  lines  or  other  artificial  political  barriers.  Even  before  the  war 
we  had  a  banking  system  which  divided  the  country  into  zones  in 
defiance  of  state  lines.  The  war  has  given  us,  in  the  administration  of 
transportation,  coal,  war  industries,  and  other  things,  new  divisions 
of  the  country  into  war  zones,  none  of  which  are  respectful  of  political 
boundaries.  The  tentacles  which  mark  the  connections  of  any 
business,  or  the  lines  which  mark  the  assembly  of  the  raw  materials 
of  any  industry,  or  the  radiation  of  its  finished  products,  know  no 
arbitrary  boundary  lines. 

This  situation  makes  it  evident  that  the  unity  of  a  program  can- 
not be  achieved  except  by  study  and  action  on  national  lines.  The 
proposal  is  heard  frequently  of  late  that  each  of  the  communities  of  the 
country  work  out  its  own  problems  of  a  return  to  peace.  Certainly 
community  participation  in  the  discussion  and  settlement  of  these 
problems  is  to  be  encouraged,  and  there  is  little  likelihood  that  the 
problems  will  receive  more  community  thought  than  they  deserve. 
But  the  larger  questions  at  issue — the  demobilization  of  men,  their 
incorporation  into  trades,  the  determination  of  industrial  relations,  the 
control  of  industrial  organization  and  activity — must  be  worked  out 
in  terms  of  industries  which, have  a  national  existence  and  of  a  con- 
sistent scheme  of  direction  which  ignores  state  as  well  as  community 
lines.  An  adaptation  of  a  program  to  a  society  which  is  now  national, 
industrial,  and  urban,  and  the  necessity  for  stating  each  separate 
problem  in  terms  of  their  common  national  and  industrial  environ- 
ment, requires  a  common  handling  of  them  as  mere  aspects  of  the  larger 
problem  of  a  developing  society. 

Our  national  industrial  society  is  a  changing  one.  Enough  has 
been  said  above  to  indicate  that  it  is  changing  in  the  organization  of 
men  and  materials  into  industries,  in  the  general  scheme  of  direction 
and  control,  and  in  the  habits,  customs,  and  modes  of  thought  which 
lie  at  the  basis  of  all  activity.  These  changes  are  going  on  with  pecu- 
liar rapidity  during  the  course  of  the  war.  The  program  which  the 
public  demands  will  not  only  be  very  different  from  that  which  would 
have  been  demanded  before  the  war,  but  what  can  and  should  be  done 
will  vary  with  the  changes  which  attend  the  course  of  the  war.  Their 


628  ECONOMICS  OF  WAR 

common  dependence  upon  the  social  situation  which  peace  will  bring 
requires  unity  of  treatment  for  the  particular  problems  which  con- 
stitute the  general  problem  of  transition. 

The  larger  social  environment  which  holds  the  particular  problems 
of  getting  back  to  a  peace  basis  is  subject  to  great  modification  by  the 
terms  of  peace.  If  the  peace  which  is  made  is  in  reality  an  armistice, 
and  competitive  military  preparations  on  a  large  scale  are  to  continue 
after  the  war,  the  idea  of  making  possible  the  use  of  the  industrial 
system  to  turn  out  a  maximum  surplus  of  wealth  for  war  uses  must 
dominate  any  program  for  the  organization  of  peace.  Not  only  does 
this  mean  a  reorganization  of  our  educational  system  about  universal 
military  service,  but  that  utility  for  war  must  be  read  into  the  design 
of  every  industrial  establishment  and  the  plan  in  terms  of  which  they 
are  organized  into  a  system.  It  involves  also  a  scheme  of  control  for 
the  system  as  a  whole,  as  well  as  the  creation  of  a  military  type  of  mind. 
But  if,  on  the  contrary,  a  peace  is  made  which  gives  promise  of  proving 
lasting,  the  surplus  wealth  would  more  properly  be  devoted  to  other 
ends;  a  scheme  of  control  different,  because  it  has  a  different  objective, 
would  be  adopted;  and  a  different  public  opinion  would  be  allowed  to 
develop.  In  view  of  the  comprehensiveness  of  these  things  every 
problem  would  in  one  way  or  another  be  touched.  Thus,  through 
their  common  dependence  upon  the  terms  of  peace,  the  particular 
problems  require  unity  of  treatment. 

3.    ENGLAND'S  MINISTRY  OF  RECONSTRUCTION 

In  July,  1917,  the  government  proposed  to  Parliament  the  estab- 
lishment of  a  Ministry  of  Reconstruction  to  continue  for  the  duration 
of  the  war  and  for  a  period  of  two  years,  or  less,  after  its  conclusion. 
The  functions  of  the  Minister  of  Reconstruction  who  assumed  office  in 
August,  1917,  are  defined  thus: 

"To  consider  and  advise  upon  the  problems  which  may  arise  out 
of  the  present  war  and  which  he  may  have  to  deal  with  upon  its 
termination,  and  for  the  purposes  aforesaid  to  institute  and  conduct 
such  enquiries,  prepare  such  schemes,  and  make  such  recommenda- 
tions as  he  thinks  fit." 

The  business  of  the  Ministry  is  to  be  acquainted  with  all  proposals 
for  dealing  with  post-war  problems  which  are  under  consideration  by 
government  departments  or  committees  or  put  forward  by  respon- 
sible bodies  or  persons,  to  study  them  in  their  bearings  upon  each 
other,  to  initiate  proposals  for  dealing  with  matters  which  are  not 


AFTER-THE-WAR  PROBLEMS  629 

already  covered,  and  out  of  all  this  material  to  build  up  in  consulta- 
tion with  the  other  departments  for  submission  to  the  Cabinet,  and 
ultimately  to  Parliament,  a  reasoned  policy  of  reconstruction  in  all 
its  branches. 

For  the  purposes  of  administration  the  department  has  been 
divided  into  branches  dealing  respectively  with  commerce  and  pro- 
duction, including  the  supply  of  materials;  with  finance,  shipping,  and 
common  services;  with  labor  and  industrial  organization;  with  rural 
development;  with  the  machinery  of  government,  central  and  local, 
health  and  education;  and  with  housing  and  internal  transport. 

Further,  to  assist  him  in  considering  the  many  and  varied  pro- 
posals which  come  before  him,  the  Minister  has  created  an  Advisory 
Council  representative  of  all  the  leading  interests  concerned  in 
reconstruction,  and  it  is  his  hope  by  consulting  the  council  freely  and 
regularly  to  secure  a  representative  consensus  of  opinion  on  any 
proposal  which  may  be  referred  to  him  for  advice  or  which  may  be 
initiated  in  the  department. 

At  the  beginning  of  the  year  the  chief  questions  immediately  under 
consideration  (in  all  cases  in  co-operation  with  the  other  departments 
affected)  are: 

A.      COMMERCE   AND  PRODUCTION 

1.  The  supply  and  control  of  raw  materials  after  the  war,  which  is 
being  investigated  by  a  committee. 

2.  Financial  facilities  for  British  commerce  and  industry  after  the 
war.    A  committee  has  been  appointed  with  the  concurrence  of  the 
Treasury. 

3.  The  preservation  of  industries  which  will  play  an  essential  part 
in  reconstruction,  but  are  in  danger  of  extinction  through  failure  of 
supplies  of  material  or  labour.     This  problem  is  being  dealt  with  in 
consultation  with  the  Priority  Organization  of  the  Cabinet. 

4.  Financial  risks  attaching  to  the  holding  of  trading  stocks. 

5.  Trusts  and  combinations,  with  special  reference  to  the  pro- 
tection of  the  consumer.     Committees  are  being  appointed  to  deal 
with  both  these  questions. 

6.  The  establishment  of  new  industries  after  the  war.     A  conv 
mittee  has  been  appointed  to  consider  this  question,  as  far  as  the 
engineering  trade  is  concerned;  it  has  already  compiled  a  preliminary 
list  of  articles  which  might  be  produced  in  this  country,  and  the 
Minister  has  appointed  a  parallel  committee  to  consider  the  labour 
questions  involved. 


630  ECONOMICS  OF  WAR 

7.  The  volume  and  nature  of  the  demand  for  British  goods  after 
the  war. 

8.  Improvements  in  trade  organization  for  the  purposes  of  more 
economical  production,  distribution,  and  marketing,  and  of  facilitating 
and  expediting  the  turnover  from  peace  to  war. 

These  last  two  questions  are  being  handled  in  consultation  with 
the  Board  of  Trade  and  the  Department  of  Overseas  Trade,  and  a 
comprehensive  scheme  of  work  has  been  prepared. 

The  Ministry  of  Munitions  also  is  co-operating  in  obtaining 
information  from  the  controlled  establishments. 

The  problem  may  be  stated  thus:  After  the  war  there  will  be  a 
world  shortage  of  certain  materials  and  the  shortage  will  be  accentu- 
ated by  the  difficulty  of  finding  tonnage  adequate  to  our  demands. 
On  the  other  hand,  there  will  be  an  almost  unlimited  demand  for 
manufactured  goods. 

The  Ministry  of  Reconstruction,  in  concert  with  the  Board  of 
Trade,  has  undertaken  to  estimate  and  analyse  the  supply.  The  Board 
of  Trade  and  the  Department  of  Overseas  Trade  will,  it  is  hoped,  by 
enquiry  of  the  trades  themselves,  of  the  Dominions,  Colonies,  India, 
and  Allies,  and  by  examination  of  other  sources  of  information, 
produce  a  corresponding  estimate  and  analysis  of  the  demand,  and 
the  results  of  both  enquiries  will  be  used  to  determine  in  what  order 
demands  shall  be  met  which  cannot  all  be  met  at  once,  in  what 
proportion  raw  materials  shall  be  directed  into  certain  channels,  in 
what  directions  the  demand  for  labour,  power,  tonnage,  and  credit  is 
likely  to  be  most  intense,,  and  what  emergency  arrangements  will  be 
required  to  meet  it. 

It  is  not  a  question  of  arbitrary  restriction  or  of  protecting  some 
industries  or  developing  others — it  is  a  question  rather  of  directing/ 
to  the  most  productive  purposes  such  materials  as  will  in  fact  be 
available,  and  of  furnishing  industry  with  the  necessary  facilities, 
including  information  for  making  those  purposes  effective. 

The  desire  of  the  government  is  to  leave  the  industries  to  ration 
themselves  under  certain  general  principles  for  which  the  government 
must  take  responsibility.  What  those  principles  should  be,  and  what 
form  of  central  machinery  should  be  devised  for  this  purpose,  is  one 
of  the  first  questions  on  which  the  Advisory  Council  is  being  asked  to 
report. 

B.      FINANCE,   SHIPPING,   AND   COMMON   SERVICES 

i.  In  conjunction  with  the  Treasury,  a  committee  has  been  set 
up  to  consider  the  question  of  currency  and  exchange  after  the  war. 


AFTER-THE-WAR  PROBLEMS  631 

2.  The  Advisory  Council  on  the  Disposal  of  Government  Stores 
has  begun  work. 

This  is  a  matter  which  the  government  regards  as  being  of  great 
importance.  The  total  volume  of  surplus  property  which  will  be  on 
the  hands  of  the  War  Department  "at  the  end  of  the  war  will  be 
enormous,  and  in  dealing  with  it  the  government  has  two  main 
objects  in  view.  The  first  is  to  protect  the  taxpayer  from  improvident 
selling;  the  second  is  to  protect  markets  and  therefore  labour  from 
the  dislocation  which  will  inevitably  result  if,  for  instance,  some  tens 
of  thousands  of  motor  vehicles  and  some  hundreds  of  miles  of  wire  are 
released  for  sale  at  once. 

They  have  decided,  therefore,  to  entrust  the  whole  executive 
arrangements  for  disposal  to  a  specially  created  body,  which  will  act 
as  salesman  for  any  government  department  having  surplus  stores  to 
dispose  of. 

At  the  same  time  the  general  principles  and  policy  governing  any 
alternative  form  of  use  or  disposal — for  instance,  whether  certain 
goods  should  be  sold  in  France  or  brought  home;  whether  motor 
lorries  should  be  thrown  on  the  market  or  reserved  for  the  use  of 
public  bodies  for  the  development  of  agricultural  transport — will  be 
settled  by  the  Advisory  Council,  for  which  the  Minister  of  Recon- 
struction will  be  responsible.  In  other  words,  the  Advisory  Council 
will  certify  certain  articles  as  disposable  and  will  indicate  the  lines 
on  which  they  are  to  be  disposed  of,  and  the  executive  body  will  then 
proceed  within  the  limits  laid  down  to  make  the  best  bargain  for  the 
taxpayer. 

C.      LABOUR  AND  INDUSTRIAL  ORGANISATIONS 

Trade  organisations. — It  has  been  agreed  between  the  Board  of 
Trade,  the  Ministry  of  Labour,  and  the  Ministry  of  Reconstruction, 
that  a  concerted  effort  should  be  made  to  promote  in  as  many  indus- 
tries as  possible  representative  organisations  to  advise  the  government 
as  to  the  views  and  needs  of  the  industries  on  the  various  industrial 
and  commercial  problems  that  will  affect  them  during  the  reconstruc- 
tion period. 

The  creation  of  the  organisations  in  question  is  not  intended  in 
any  way  to  prejudice  the  formation  of  Joint  Industrial  Councils,  but 
is  designed  as  an  emergency  measure  to  facilitate  the  transition  from 
war  to  peace  conditions,  and  to  expedite  the  establishment  of  perma- 
nent Industrial  Councils  and  the  determination  of  their  functions. 

The  Ministry  of  Labour  will,  therefore,  proceed  with  the  formation  - 
of  Industrial  Councils,  and  the  three  Ministries  will  co-operate  in  the 


632  ECONOMICS  OF  WAR 

establishment  of  the  interim  organisations  referred  to.  For  this 
purpose  there  will  be  a  standing  Conference  on  Trade  Organisations 
at  the  Ministry  of  Reconstruction,  consisting  of  three  employers, 
three  trade  unionists,  and  representatives  of  the  three  departments. 
The  functions  of  the  conference  will  be,  (a)  to  classify  trades  for  the 
purpose  of  promoting  representative  organisations  in  each;  (b)  to 
advise  as  to  the  manner  in  which  each  trade  should  be  approached, 
and  the  persons  and  existing  organisations  who  .should  be  consulted, 
and  the  matter  to  be  placed  before  them. 

A  general  survey  of  industrial  policy  as  a  whole  has  been  prepared 
and  the  following  branches  are  being  examined  in  detail:  the  law 
relating  to  merchant  shipping;  labour  in  merchant  shipping ;  war-time 
departures  from  trade-union  practices;  industrial  courts;  industrial 
structures;  apprenticeship;  reinstatement  of  returning  soldiers  and 
sailors;  international  labour  legislation. 

In  agreement  with  the  other  departments  affected,  a  survey  has 
been  undertaken  of  industrial  methods.  As  a  part  of  the  enquiry,  a 
special  investigation  has  been  made  into  the  organisation  of  the  woolen 
and  worsted  trade,  as  an  example  of  joint  control,  and  into  the  arrange- 
ments made  in  the  West  Riding  dyeing  industry  for  providing  security 
of  employment.  The  working  of  the  Cotton  Control  Board  is  now 
being  investigated. 

An  enquiry  is  being  made  jointly  with  the  Ministry  of  Labour  into 
the  question  of  juvenile  employment. 

The  Civil  War-Workers  Demobilisation  Committee  and  the 
Women's  Employment  Committee  are  continuing  their  enquiries. 

The  question  of  army  demobilisation  has,  apart  from  a  few  points 
which  still  remain  to  be  determined,  passed  into  the  executive  phase 
and  is  in  the  hands  of  the  War  Office  and  Ministry  of  Labour. 
Broadly  speaking,  the  division  of  functions  is  that  the  War  Office  is 
responsible  for  the  man  until  he  leaves  the  army  and  the  Ministry  of 
Labour  is  responsible  for  him  until  he  re-enters  employment. 

Since  demobilisation  must  in  the  most  favorable  circumstances  be 
a  slow  process  and  must  be  conducted  in  some  order,  the  War  Office 
and  the  Ministry  of  Labour  will,  in  conjunction  with  the  Ministry  of 
Reconstruction,  determine  the  priority  of  different  trades  on  the  basis 
of  the  information  obtained  by  the  Ministry,  and  on  the  general 
principle  that  the  essential  industries  shall  be  served  first.  The 
results  of  the  enquiries  already  referred  to  as  to  the  post-war  demand 
for  goods  and  the  supply  of  materials  and  manufacturing  facilities 
will  be  available  for  their  guidance. 


AFTER-THE-WAR  PROBLEMS  633 

In  order  that  so  far  as  possible  surplus  labour  may  be  usefully 
and  rapidly  absorbed  after  the  war,  a  complete  list  of  public  works 
which  have  fallen  into  arrears  is  being  prepared. 

D.      RURAL  DEVELOPMENT 

The  Ministry  is  working,  in  association  with  the  Board  of  Agri- 
culture, on  land  settlement;  a  general  survey  of  agricultural  policy 
has  been  prepared  and  the  material  is  being  brought  together  for  a 
review  of  the  land  question  as  a  whole.  The  question  of  instituting 
an  enquiry  into  rating  is  under  consideration.  The  following  ques- 
tions have  received  special  examination: 

1.  The  working  of  the  Small  Holdings  Act,  1908,  and  the  future  of 
urban  war  allotments. 

2.  The  report  of  the  Forestry  Committee  has  been  published  and 
a  scheme  has  been  prepared  in  consultation  with  the  departments 
concerned  for  the  consideration  of  the  government. 

3.  The  rural  housing  problem. 

4.  The  organisation  of  county  offices  for  advice  and  information 
on  agriculture,  on  which  proposals  are  being  discussed  by  the  Advisory 
Council. 

5.  Tithe  redemption. 

6.  Village  industries. 

7.  The  Land  Acquisition  Committee  has  reported. 

E.      MACHINERY  OF   GOVERNMENT,   HEALTH,   EDUCATION,   ETC. 

1.  Lord  Haldane's  committee  on  the  distribution  of  functions 
between  government  departments  is  continuing  its  enquiries  and 
negotiations    are   proceeding   with    the    departments    and    outside 
bodies  concerned  with  regard  to  the  formation  of  a  Ministry  of 
Health. 

2.  The  Committee  on  Local  Government  has  presented  a  report 
on  the  functions  of  Poor  Law  authorities  which  has  been  published. 

3.  A  Committee  on  Adult  Education  has  been  appointed  and  has 
made  considerable  progress. 

F.      HOUSING  AND  INTERNAL  TRANSPORT 

In  consultation  with  the  departments  affected,  a  housing  program 
has  been  prepared  for  submission  to  the  Cabinet. 

With  a  view  to  facilitating  work  in  connection  with  housing  the 
following  committees  are  at  work: 


634  ECONOMICS  OF  WAR 

1.  The  Committee  on  the  Supply  of  Building  Materials  is  collect- 
ing information  from  the  trade  as  to  its  probable  requirement  in 
material  and  labor. 

2.  The  Housing  (Building  Construction)  Committee  set  up  by 
the  local  government  board  in  consultation  with  the  Minister  of 
Reconstruction. 

3.  The  Committee  on  Building  By-Laws. 

Special  investigations  have  been  made  into  the  following  points: 

1.  Control  of  public  utility  societies. 

2.  Town  planning. 

3.  Rings  in  the  building  trade. 

4.  The  working  of  the  Small  Dwellings  Acquisition  Act. 

A  general  review  of  the  problem  of  inland  transport  is  now  being 
prepared.  The  sections  dealing  with  roads  and  canals  are  completed; 
the  department  is  in  consultation  with  the  Board  of  Trade  as  to  the 
future  of  the  railways  (including  light  railways)  and  an  enquiry  has 
been  begun  into  the  question  of  storage  and  distribution  as  essential 
elements  in  transport  policy. 

An  important  part  of  the  work  of  the  Ministry  is  the  examination 
of  all  proposals  from  a  legal  point  of  view  with  a  view  to  determining 
what  amendments  of  the  existing  law  are  involved.  Side  by  side  with 
this  the  large  volume  of  emergency  enactments  and  orders  has  to  be 
reviewed  in  its  bearing  on  the  immediate  post-war  problems  and  the 
situation  that  will  be  produced  by  their  expiry  or  repeal. 

LXX.     The  Problem  of  Demobilization 
i.     THE  TASK  OF  DEMOBILIZATION1 

The  most  immediate  and  perhaps  the  most  important  problem 
of  the  transition  from  war  to  peace  is  that  of  demobilization.  If  it 
involved  only  the  discharge  of  soldiers  from  the  army  it  would  be 
simple  and  its  solution  easy.  But  because  of  the  vast  scale  of  modern 
warfare  and  of  its  use  of  the  whole  of  the  economic  system,  this  is 
but  a  part  of  a  comprehensive  process  of  economic  reorganization. 
Not  only  are  soldiers  to  be  discharged,  but  plants  are  to  be  turned  to 
new  uses,  and  their  equipment  re-made  to  serve  new  ends.  There  is 
involved  also  the  use  of  technique  which  the  war  has  built  up,  and  of 
an  organization  necessary  for  the  production  of  materials  useful  in 

1  From  a  confidential  report  to  the  United  States  government. 


AFTER-THE-WAR  PROBLEMS  635 

war.  Already  factories  have  been  devoted  to  new  ends,  and  the  paths 
of  trade,  the  markets,  and  the  organization  of  separate  establishments 
into  trades  and  these  into  an  industrial  system  have  been  profoundly 
affected.  But  the  problem  has  a  positive  as  well  as  a  negative  aspect. 
It  consists  not  only  in  getting  these  men,  materials,  etc.,  out  of  war 
uses,  but  in  getting  them  into  peace  uses.  The  question  is,  how  can 
this  be  effected  most  quickly,  with  the  least  waste,  and  on  relatively 
permanent  lines  ? 

If  the  problem  is  to  be  handled  as  it  was  handled  in  this  country 
at  the  end  of  the  Civil  War,  in  England  after  the  Boer  War,  and  in 
almost  every  country  after  every  nineteenth  century  war,  it  will  be 
upon  the  simple  theory  that  the  function  of  the  government  is  to 
discharge  men  from  the  army  and  to  fail  to  renew  munition  con- 
tracts and  then  leave  the  reorganization  of  the  industrial  system 
for  peace  to  the  simple  and  obvious  system  of  natural  liberty.  But 
note  what  is  involved  in  this:  Four  or  five  million  men,  from  the  most 
skilled  to  the  least  skilled,  are  to  be  turned  loose  without  employment 
or  assured  means  of  livelihood.  Government  contracts  calling  for 
materials  valued  at  from  twelve  to  twenty  billions  of  dollars  annually 
are  to  be  canceled.  This  leaves  a  very  large  part  of  the  industrial 
establishments  of  the  country  without  immediate  sale  for  their 
products,  and  forces  them  to  look  around  for  other  markets.  Poten- 
tially, at  least,  it  throws  out  of  employment  a  host  of  men  and  women 
much  larger  than  the  number  actually  discharged  from  government 
service.  In  view  of  these  two  conditions,  a  number  of  other  things 
may  be  expected.  The  host  of  free  laborers,  all  seeking  employment, 
means,  temporarily,  at  any  rate,  a  glut  of  the  labor  market.  The 
uncertainty  about  purchase  of  war  wares  and  markets  leads  to  caution 
on  the  part  of  the  managers  of  industry.  Those  of  the  managers 
whose  factories  have  become  idle  will  be  looking  around  for  a  chance 
which  will  promise  the  largest  volume  of  profits,  but  the  uncertainty 
attending  so  colossal  a  disturbance  will  require  caution.  The  laborers 
who  have  no  immediate  employment,  or  who  may  expect  lower 
wages,  will  be  rather  reluctant  to  buy  goods  whose  purchase  can  be 
deferred.  All  history  attests  that  a  crisis  of  this  kind,  if  the  govern- 
ment does  not  intervene,  will  be  accompanied  by  a  period  of  falling 
prices.  This  discouraging  of  industrial  venture  on  the  part  of 
employers  tends  to  unemployment  and  underemployment,  and  to  a 
delay  in  getting  the  industrial  system  organized  to  meet  the  demands 
of  peace.  In  addition,  if  the  government  furnished  no  plan,  there 


636  ECONOMICS  OF  WAR 

is  no  assurance  that  the  plants  used  to  produce  war  supplies  will  be 
converted  to  peace  uses  without  a  great  deal  of  waste,  or  that  the 
laborers  will  be  got  into  employment  without  a  great  deal  of  the 
knowledge,  skill,  and  training  which  they  now  possess  being  wasted. 

In  most  cases,  too,  the  conversion  of  a  plant  to  new  uses  will  be 
dependent  upon  borrowed  capital.  This  cannot  be  obtained  unless 
there  is  assurance  that  the  plant  will  pay.  If  only  a  few  plants  were 
to  be  converted,  such  assurance  would  be  easy.  If  all  war  plants  are 
to  be  converted  and  the  lines  of  production  into  which  they  go  are 
properly  apportioned  to  each  other,  there  is  assurance  of  financial 
success,  for  they  make  a  demand  for  each  other's  products.  But,  if 
the  conversion  is  to  be  left  to  the  judgment  of  the  several  manu- 
facturers, each  of  whom  in  this  period  of  transition  tries  to  find  the 
industrial  opening  which  will  pay  best,  there  is  sure  to  be  serious 
waste,  duplication,  and  a  long  period  of  delay.  A  concerted  plan  is 
necessary  to  avoid  these  costs.  Such  a  plan,  too,  is  for  the  best 
interest  of  concerns  which  require  no  conversion,  or  which  can  easily 
find  for  themselves  industrial  opportunities,  for  the  profits  of  such 
establishments  depend  upon  their  sales  and  their  sales  are  contingent 
upon  having  the  rest  of  the  industrial  system  occupied  in  making 
profits  and  the  people  busied  with  earning  wages. 

Such  are  the  purely  economic  difficulties  attending  demobilization. 
But  they  are  increased  by  others  of  a  semi-economic  or  non-economic 
character.  Note,  for  instance,  the  chance  that  in  the  depression 
which  follows  the  war,  which  seems  inevitable  unless  the  government 
meets  it  with  a  plan,  many  of  the  gains  of  the  war  are  likely  to  be  lost. 
Much  has  already  been  done  toward  teaching  the  laborer  the  rela- 
tionship between  his  own  product  and  social  welfare,  and  in  showing 
the  nation  the  gains  which  come  from  making  this  product  as  large 
as  possible,  but  it  will  be  very  difficult  if  not  impossible  to  keep  these 
ideas  alive  if  a  large  part  of  labor  is  unemployed  and  if  the  industrial 
system  is  half-stalled.  Much,  too,  has  been  accomplished  in  main- 
taining the  rates  of  wages  high  enough  to  give  a  living  large  enough  to 
assure  high  production  and  efficiency,  in  regulating  hours,  in  improving 
housing  conditions,  and  in  the  establishment  of  a  national  minimum 
for  living  and  working  conditions.  The  maintenance  of  these  gains 
depends  partly  upon  the  ability  of  the  employer  to  finance  them  and 
partly  upon  a  demand  on  the  part  of  the  laborers  that  they  be  main- 
tained. With  industry  running  at  full  blast  and  with  full  employ- 
ment both  of  these  conditions  are  assured;  but  if  the  industrial  system 


AFTER-THE-WAR  PROBLEMS  637 

is  running  half-stalled  they  are  threatened.  The  plant  which  is  built 
to  turn  out  a  certain  fixed  output  at  the  smallest  cost  per  unit  has  its 
profit  seriously  threatened  if  its  sales  are  reduced  by  only  a  small 
percentage,  and  in  view  of  this  the  employer  finds  it  necessary  to 
reduce  costs  in  every  conceivable  way  if  he  is  to  survive.  A  reduction 
of  wages  and  lowered  living  standards  become  the  inevitable  results. 

A  political  consideration  leads  to  the  same  end.  At  the  end  of  the 
war  a  very  considerable  portion  of  the  industry  of  the  country  will 
be  producing  goods  on  government  contracts.  They  buy  their 
materials  from  other  industries.  They  are  connected  with  financial 
institutions.  They  give  employment  to  millions  of  men  and  women. 
The 'government  contracts  are  the  source  of  prosperity  in  the  towns 
in  which  they  are  situated.  It  is  needless  to  say  that  they  will  be  very 
apprehensive  of  the  withdrawal  of  government  contracts.  In  the 
absence  of  a  constructive  plan  which  assures  to  them  continued 
business  and  a  chance  to  continue  the  employment  of  their  workers, 
they  are  certain  to  attempt  to  maintain  a  market  for  their  wares. 
It  is  not  only  possible,  but  almost  certain,  that  in  this  event  a  great 
munitions  lobby  will  be  established,  with  the  object  of  insuring 
continued  government  contracts.  This  will  have  the  support  of  the 
munitions  manufacturers,  of  those  in  related  industries,  and  of  the 
laboring  classes  dependent  upon  these  business  men  for  employment. 

It  is  not  the  purpose  of  this  memorandum  to  suggest  a  plan  for 
demobilization,  but  rather  to  indicate  the  need,  (i)  of  an  intelligent 
study  of  the  problem  in  all  of  its  ramifications  and,  (2)  of  the  formu- 
lation of  a  constructive  plan  which  aims  at  supplying  the  one  thing 
necessary  to  a  successful  transition,  namely,  organization.  To  that 
end  the  following  tentative  suggestions  may  be  made.  While  they 
are  not  definite  and  are  very  tentative,  they  are  all  mere  corollaries 
of  the  discussion  given  above. 

a)  A  careful,  plan  must  be  formed  for  the  demobilization  of  men 
in  the  army.  It  seems  clear  that  this  demobilization  should  be 
gradual  and  not  sudden,  and  should  be  dependent  upon  the  ability 
of  the  industrial  system  to  reabsorb  the  discharged  men.  In  this 
connection  it  seems  that  demobilization  should  be  in  accordance  with 
economic  needs  rather  than  by  military  units;  but  economic  needs 
are  not  to  be  interpreted  as  the  demobilization  of  all  of  a  certain  trade 
at  one  time.  On  the  contrary,  since  various  industries  fit  into  an 
intricate  system  and  various  occupations  are  part  of  a  single  process 
of  producing  goods,  it  is  necessary  that  men  of  varied  occupations  be 


638  ECONOMICS  OF  WAR 

released  at  one  time.  This  suggests  that  a  contingent  made  up  of 
men  of  a  number  of  occupations  in  proper  proportions  to  each  other 
be  released  at  one  time,  another  like  contingent  later,  etc.  This,  in 
all  probability,  would  involve  a  scheme  of  priorities  in  converting 
establishments  to  peace  uses. 

b)  In  lieu  of  government  demands,  there  are  many  uses  to  which 
men  and  materials  could  be  devoted  during  the  transition  period,  and 
from  which  they  could  very  gradually  be  withdrawn.     In  the  first 
place,  there  is  a  great  need  for  replacing  machinery,  equipment,  and 
other  capital  goods  worn  out  and  made  obsolete  by  the  war.     In  the 
second  place,  men,  materials,  and  plants  can  be  used  in  the  rehabilita- 
tion of  territory  devastated  in  the  war.     There  is  abundant  use  in 
France,  in  Belgium,  and  in  Russia  for  men  and  materials,  and  a  large 
part  of  the  industrial  equipment  to  be  used  there  might  well  be  manu- 
factured in  this  country.     Whether,  of  course,  this  is  feasible  or 
desirable  as  against  other  uses  depends  upon  a  number  of  questions 
which  we  cannot  take  up  here,  and  if  it  is  useful  or  desirable  a  practical 
plan  for  its  accomplishment  depends  alike  on  the  treaty  of  peace,  the 
scheme  of  international  credits,  and  a  number  of  other  considerations. 
In  the  third  place,  men  and  materials  might  well  be  used  in  irrigation, 
in  forestation,  and  in  railroad  building,  for  all  of  which  there  was  a 
demand  even  before  the  war.    The  great  danger  in  such  use  is  that 
the  projects  may  be  unproductive.     To  avoid  that,  it  is  very  necessary 
that  they  be  carefully  canvassed  by  experts.     If  this  is  done  and  if  we 
are  willing  to  wait  for  returns,  there  seems  small  reason  for  thinking 
that  such  use  would  not  be  sound  public  policy.     Besides,  if  this  leads 
to  full  employment  of  plants  and  men,  and  in  this  way  insures  the 
running  of  the  industrial  system  at  something  like  its  full  capacity,  the 
costs  will  more  than  be  met  by  increased  productivity  in  other  lines. 

c)  Another  problem  is  that  of  plant  conversion.    This  can  be 
handled  best  by  means  of  some  person  or  body  familiar  with  the  eco- 
nomic system,  the  demand  for  goods  in  peace  times,  and  the  technical 
possibilities  of  the  several  factories.     If  a  series  of  factories  good  for 
certain  uses  is  to  be  converted  into  a  series  good  for  quite  other  uses, 
it  is  important,  first,  that  the  new  uses  be  those  most  important  in  view 
of  peace  conditions,  and,  in  the  second  place,  that  the  scheme  be 
arranged  so  that  the  factories  can  be  converted  with  the  least  aggregate 
waste.    This  cannot  be  done  by  allowing  each  employer  by  trial  and 
error  to  find  his  new  market.     Here  the  advice  of  technological  experts 
working  with  the  knowledge  of  economic  conditions  is  indispensable. 


AFTER-THE-WAR  PROBLEMS  639 

d)  Some  plan  for  the  extension  of  government  credit  to  plants 
which  have  to  be  converted  to  peace  uses  seems  almost  unavoidable. 
Such  extension  of  credit  removes  the  danger  which  the  chance  of  not 
making  profit  imposes  on  business  enterprises  and  makes  possible  the 
full  employment  of  men;  since  the  great  lack  is  one  of  organization, 
such  an  extension  of  credits,  if  conditioned  upon  the  willingness  of  the 
companies  to  engage  in  the  respective  lines  of  production  pointed  out 
by  the  government,  will  assure  a  transition  without  depression;   for 
as  we  have  said,  if  properly  organized,  the  various  concerns  will  make 
a  demand  for  each  other's  products.    Here  it  needs  to  be  added  that 
if  the  government  offers  credits  it  is  in  position  to  impose  conditions. 
These  conditions  should  include  specifications  as  to  wages,  hours, 
living,  and  working  conditions.     This  is  a  device,  which,  if  properly 
used,  will  not  only  insure  that  the  transition  period  be  made  without 
depression  or  serious  social  waste,  but  can  be  made  of  account  in 
making  permanent  the  gains  in  industrial  relationships  which  the  war 
has  brought  with  it. 

e)  These  suggestions,  as  indicated  above,  are  tentative.    They 
point  rather  in  the  direction  of  investigation  than  definitely  toward  a 
program,  but  altogether  they  indicate  the  comprehensiveness  of  the 
problem,  the  intimate  relations  between  the  various  problems  which 
make  it  up,  and  the  necessity  of  a  unified,  consistent,  and  constructive 
program  for  meeting  it. 

2.    WILL  THERE  BE  A  SEX  WAR  IN  INDUSTRY?1 

The  problem  is  a  problem  of  adjustment;  of  the  distribution  of 
labour,  skilled  and  unskilled,  male  and  female,  among  the  various- 
existing  and  potential  occupations  which  the  return  of  peace  con- 
ditions will  offer.  And  from  the  workers'  point  of  view  it  is  pre- 
dominantly a  question  of  how  to  stifle  the  renewed  competition  which 
will  necessarily  prejudice  the  bargaining  power  of  Labour  in  the 
coming  scramble  for  the  produce  of  industry.  It  has  special  reference 
to  the  outstanding  problem  of  how  to  deal  with  the  army  of  women 
workers  which  war  conditions  have  called  from  home  duties  or  unenter- 
prising idleness,  as  the  case  may  be.  It  is  here  that  we  see  looming 
ahead  of  us  the  horrible  possibility  of  something  like  an  industrial  sex 
war,  in  which  the  men's  trade  unions,  and  no  doubt,  for  sentimental 
reasons,  a  large  section  of  the  public  will  be  on  one  side,  and  the 

1  By  Mary  Stocks.    Adapted  from  "  The  Future  of  the  Woman  War  Worker," 
The  Athenaeum,  No.  4625,  pp.  21-23. 


640  ECONOMICS  OF  WAR 

industrial  women,  supported  by  the  employers  for  purposes  of  their 
own,  on  the  other. 

Broadly,  the  position  of  the  women  is  this:  In  normal  times  they 
have  had,  for  various  reasons,  to  put  up  with  a  wage-level  con- 
siderably below  that  of  the  corresponding  class  of  male  wage  earner. 
Among  these  reasons  we  may  include  their  inferior  physical  capacity 
in  a  number  of  occupations;  their  lower  subsistence-level,  resulting 
from  the  general  absence  of  dependent  families  and  the  frequent 
existence  of  home  resources  independent  of  their  industrial  earnings; 
the  temporary  nature  of  their  industrial  careers,  resulting  from  the 
fact  that  they  frequently  regard  industry  as  a  stop-gap  pending  mar- 
riage; and  the  consequential  absence  of  vital  and  lifelong  interest  in 
industrial  conditions  which  is  the  moving  spirit  of  an  effective  trade 
unionism.  These  are  among  the  interacting  causes  of  the  inferiority 
of  women's  earnings;  but  the  widest  and  most  profound  cause  lies 
in  the  fact  that  women,  though  of  course  constituting  a  minority  in 
the  industrial  world,  are  nevertheless  competing  for  employment  in 
such  a  comparatively  restricted  area  that  the  competition  among 
them  is  more  intense  than  it  is  among  male  workers.  To  put  it 
metaphorically,  the  volume  of  the  flood  is  less,  but  its  channel  is 
relatively  narrower;  therefore  its  action  is  more  destructive. 

When  we  begin  to  inquire  into  the  reasons  for  this  restriction  we 
find  ourselves  lost  in  a  perfect  maze  of  speculations.  To  begin  with, 
obviously  the  genuine  physical  limitations  of  women  must  necessarily 
impose  a  natural  barrier  to  a  whole  host  of  occupations.  Supposed 
physical  limitations  not  improbably  add  to  the  number.  In  addition 
there  are  less  definite  social  causes,  such  as  differential  factory  legisla- 
tion, the  inconveniences  of  a  mixed  staff,  and  the  liability  of  women 
to  get  married,  which  must  account  for  a  considerable  restriction  of 
the  demand  for  their  labour.  And  behind .  all  this  brood  many 
centuries  of  tradition,  custom,  prejudice,  and  sex  jealousy. 

With  the  development  of  war  conditions,  however,  some  very 
profound  modifications  have  occurred  in  the  conditions  sketched 
above.  In  the  first  place,  the  urgent  national  necessity  of  replacing 
the  large  numbers  of  men  withdrawn  from  the  labour  market  has 
accounted  for  the  dissolution  of  much  irrational  prejudice  against 
women's  work,  and  broken  down  innumerable  barriers  of  custom  and 
tradition.  And  under  the  hard  schooling  of  necessity  the  economic 
world  has  learned  that  much  of  the  physical  and  mental  incapacity, 
much  of  the  administrative  inconvenience,  of  women  workers  has 


AFTER-THE-WAR  PROBLEMS  641 

disappeared  under  the  test  of  actual  practice.  In  the  second  place, 
the  heavy  war  mortality  among  young  men  must  mean  that,  for  a 
generation  at  least,  large  numbers  of  young  women  will  have  to  find 
in  the  world  of  industry  the  main  interest  of  their  lives,  though  how 
far  this  fact  will  affect  their  industrial  psychology  it  is,  of  course, 
impossible  to  estimate. 

When  we  come,  therefore,  to  re-examine  the  old  causes  of  inferi- 
ority, we  find  that  while  many  of  them  remain  presumably  unaltered, 
one  or  two  of  them  have  been  profoundly  affected.  First  and  fore- 
most the  field  in  which  women  are  competing  for  employment  has 
been  almost  indefinitely  extended;  and  it  has  been  so  extended  as  to 
include  grades  of  comparatively  well-paid  work  hitherto  closed. 
Women  workers  remain,  for  the  most  part,  unorganized,  an  easy  prey 
to  industrial  exploitation;  but  given  the  will  to  combine  and  the  power 
to  bargain  collectively,  circumstances  point  to  the  possibility  of  better 
conditions  for  women  workers  in  the  near  future.  But  of  course  all 
this  presupposes  the  continuance  of  the  new  opportunities;  takes  for 
granted  that  what  is  now  open  will  necessarily  remain  open.  Will  it  ? 
Certainly  much  of  it  will,  for  there  is  no  mending  of  broken  traditions 
and  no  re-erecting  of  shattered  illusions;  but  there  is  such  a  possibility 
as  the  rebuilding  of  industrial  or  professional  barriers  for  reasons  other 
than  the  actual  capacity  of  women  to  do  the  work;  and  that  brings  us 
back  to  our  opening  problem,  the  readjustment  of  industrial  conditions 
when  a  demobilized  army  returns  to  the  labour  market. 

Now  it  must  be  remembered  that  much  of  the  old  exclusion  of 
women  from  skilled  industrial  processes  was  the  result  of  trade  union 
regulations — agreements  forced  upon  the  employer  by  organized 
male  labour.  Women  were  regarded,  and  not  without  good  reason, 
as  undesirable  fellow- workers  where  a  comparatively  high  standard 
of  life  was  to  be  maintained.  And  when  the  exigencies  of  War  made  it 
necessary  for  Mr.  Lloyd  George  to  promote  the  utilization  of  female 
labour  in  skilled  industry,  he  found  himself  up  against  one  of  the  most 
cherished  and  hard-earned  privileges  of  the  British  trade  unionism, 
and,  as  is  well  known,  was  only  able  to  obtain  the  suspension  of  that 
privilege  on  the  definite  understanding  that,  after  the  return  of  peace, 
the  said  trade  union  regulations  should  be  fully  and  legally  re- 
established. Although  in  the  meanwhile  industrial  processes  have  un- 
dergone such  revolutionary  changes  of  mechanism  and  organization  as 
to  render  the  literal  fulfilment  of  that  pledge  appallingly  difficult,  if  not 
practically  impossible,  yet  Labour  holds,  as  it  were,  an  I.O.U.  against 


642  ECONOMICS  OF  WAR 

the  government,  and  will  be  in  a  position,  when  the  time  comes,  to 
demand  its  discharge  in  the  spirit,  if  not  in  the  letter.  The  spirit  at 
the  present  time,  if  straws  show  the  way  of  the  wind,  is  undoubtedly 
an  exclusive  one  as  far  as  the  woman  war  worker  is  concerned.  Nor 
is  the  problem  confined  to  those  occupations  where  definite  trade-union 
regulations  have  been  suspended.  The  woman  bank  clerk,  like  the 
woman  engineer,  will,  in  days  to  come,  find  herself  confronted  by  a 
male  predecessor  whose  standards  of  remuneration,  and  probably  of 
professional  efficiency,  are  higher  than  her  own. 

Given  the  above-described  circumstances,  the  situation  to  be 
avoided  at  all  costs  is  one  in  which  the  trade  unions  will  be  fighting 
on  one  side  for  exclusion,  women  on  the  other  for  employment;  the 
latter  backed  whole-heartedly  by  the  employers  in  search  of  cheap 
and  comparatively  docile  labour  power,  the  former  backed  half- 
heartedly by  the  government  in  pursuance  of  the  pledges  exacted  in 
the  hour  of  need.  And  the  victory  of  either  side  will  spell  disaster. 
If  the  exclusive  principle  is  carried  through,  women  workers  will  find 
themselves  at  the  mercy  of  trade-union  regulations  for  the  first  time 
possessing  the  force  of  law,  and  flung  back  into  the  old  degraded  and 
inadequate  industrial  channels,  where  they  will  compete  all  the  more 
destructively  by  reason  of  their  swollen  numbers.  They  will  suffer, 
and  their  suffering  will  generate  bitterness  at  a  time  when  all  the  good 
will  in  the  world  will  be  necessary  to  face  an  uncertain  future.  Inci- 
dentally, the  economic  well-being  of  the  nation  will  be  prejudiced  by 
the  wastage  of  industrial  capacity  at  a  time  when,  with  proper  fore- 
sight and  organization,  the  demand  of  industry  for  labour  should  be 
insatiable.  Limitations  on  the  power  of  industrial  producers  to 
produce  will  prove  as  harmful  in  the  hungry  years  which  must  follow 
a  world-war  as  they  are  in  face  of  the  rapacious  requirements  of  war 
itself.  On  the  other  hand,  if  for  some  reason  the  spirit  of  the  pledge 
is  never  redeemed,  if  the  employers  succeed  in  utilizing  the  mass  of 
women  war  workers  as  a  cheap  labour  supply  for  post-war  industry 
and  as  a  catspaw  for  the  deposition  of  Labour's  aristocracy,  the  result 
will  be  a  serious  menace  to,  if  not  the  actual  destruction  of,  such  a 
life-standard  as  over  a  century  of  trade-union  effort  has  painfully, 
succeeded  in  building  up.  Here,  too,  will  be  a  source  of  most  disas- 
trous and  dangerous  bitterness,  and  among  that  very  section  of  the 
community,  the  home-coming  army,  which  merits  the  first  considera- 
tion of  the  nation. 


AFTER-THE-WAR  PROBLEMS  643 

LXXI.     Some  Programs  of  Social  Reform 
i.    THE  WAR  AIMS  OF  AMERICAN  UNIONISTS1 

We  are  face  to  face  with  a  world-crisis.  We  are  in  a  world-struggle 
which  will  determine  for  the  immediate  future  whether  principles  of 
democratic  freedom  or  principles  of  force  shall  dominate.  The 
decision  will  determine  not  only  the  destiny  of  nations  but  of  every 
community  and  of  every  individual.  No  life  will  be  untouched. 

Either  the  principles  of  free  democracy  or  of  Prussian  militaristic 
autocracy  will  prevail.  There  can  be  no  compromises.  So  there  can 
be  no  neutrality  among  nations  or  individuals — we  must  stand  up  and 
be  counted  with  one  cause  or  the  other.  For  Labor  there  is  but  one 
choice. 

The  hope  of  Labor  lies  in  opportunity  for  freedom.  The  workers 
of  America  will  not  permit  themselves  to  be  deceived  or  deceive  them- 
selves into  thinking  the  fate  of  the  war  will  not  vitally  change  our 
lives.  A  victory  for  Germany  would  mean  a  pan-German  empire 
dominating  Europe  and  exercising  a  world  balance  of  power  which 
Germany  will  seek  to  extend  by  force  into  world-control.  Prussian 
rule  means  supervision,  checks,  unfreedom  in  every  relation  of  life. 

Prussianism  has  its  roots  in  the  old  ideal  under  which  men  sought 
to  rule  by  suppressing  the  minds  and  wills  of  their  fellows;  it  blights 
the  new  ideal  of  government  without  force  or  chains — political  or 
industrial — protected  by  perfect  freedom  for  all. 

Unless  the  reconstruction  shall  soon  come  from  the  German 
workers  within  that  country  it  is  now  plain  that  an  opportunity  to 
uproot  the  agencies  of  force  will  come  only  when  democracy  has 
defeated  autocracy  in  the  military  field,  and  wins  the  right  to  construct 
relations  between  nations  and  men.  The  peace  parleys  between 
Russia  and  Germany  have  shown  the  futility  of  diplomatic  negotia- 
tions until  Prussian  militarists  are  convinced  they  cannot  superimpose 
their  will  on  the  rest  of  the  world.  Force  is  the  basis  of  their  whole 
organization  and  is  the  only  argument  they  will  understand. 

Spontaneous  uprisings  in  Germany  in  protest  against  the  mili- 
tarist government  -have  shown  that  the  German  government  is  still 
stronger  than  the  movement  for  German  emancipation.  German 
freedom  is  ultimately  the  problem  of  the  German  people.  But  the 

1  A  statement  drawn  up  by  the  Executive  Council  of  the  American  Federation 
of  Labor  at  a  meeting  held  in  Washington,  February  18,  1917. 


644  ECONOMICS  OF  WAR 

defeat  of  Prussian  autocracy  on  the  battlefield  will  bring  an  opportu- 
nity for  German  liberty  at  home. 

We  have  passed  the  period  when  any  one  nation  can  maintain 
its  freedom  irrespectively  of  other  nations.  Civilization  has  closely 
linked  nations  together  by  the  ties  of  commerce,  and  quick  com- 
munication, common  interests,  problems,  and  purposes.  The  future 
of  free  nations  will  depend  upon  their  joint  ability  to  devise  agencies 
for  dealing  with  their  common  affairs  so  that  the  greatest  opportunity 
for  life,  liberty,  and  pursuit  of  happiness  may  be  assured  to  all. 

This  matter  of  world  democracy  is  of  vital  interest  to  Labor. 
Labor  is  not  a  sect  or  a  party.  It  represents  the  invincible  desire  for 
greater  opportunity  of  the  masses  of  all  nations.  Labor  is  the  brawn, 
sinews,  and  brains  of  society.  It  is  the  user  of  tools.  Tools' under 
the  creative  power  of  muscle  and  brains  shape  the  materials  of 
civilization.  Labor  makes  possible  every  great  forward  movement  of 
the  world.  But  Labor  is  inseparable  from  physical  and  spiritual  life 
and  progress.  Labor  now  makes  it  possible  that  this  titanic  struggle 
for  democratic  freedom  can  be  made. 

The  common  people  everywhere  are  hungry  for  wider  opportu- 
nities to  live.  They  have  shown  the  willingness  to  spend  or  be  spent 
for  an  ideal.  They  are  in  this  war  for  ideals.  Those  ideals  are  best 
expressed  by  their  chosen  representative  in  a  message  delivered  to  the 
Congress  of  the  United  States,  January  8,  setting  forth  the  program  of 
the  world's  peace.  President  Wilson's  statement  of  war  aims  has  been 
unreservedly  indorsed  by  British  organized  labor.  It  is  in  absolute 
harmony  with  the  fundamentals  indorsed  by  the  Buffalo  Convention 
of  the  American  Federation  of  Labor. 

We  are  at  war  for  those  ideals.  Our  first  big  casualty  list  has 
brought  to  every  home  the  harass  and  the  sacrifices  of  war.  This  is 
only  the  beginning.  A  gigantic  struggle  lies  just  ahead  that  will  test 
to  the  uttermost  the  endurance  and  the  ability  and  the  spirit  of  our 
people.  That  struggle  will  be  fought  out  in  the  mines,  farms,  shops, 
mills,  shipyards,  as  well  as  on  the  battlefield.  Soldiers  and  sailors 
are  helpless  if  the  producers  do  not  do  their  part.  Every  link  in  the 
chain  of  the  mobilization  of  the  fighting  force  and  necessary  supplies 
is  indispensable  to  winning  the  war  against  militarism  and  principles 
of  unfreedom. 

The  worker  who  fastens  the  rivets  in  building  the  ship  is  per- 
forming just  as  necessary  war  service  to  pur  Republic  as  the  sailor 
who  takes  the  ship  across  or  the  gunner  hi  the  trenches. 


AFTER-THE-WAR  PROBLEMS  645 

This  is  a  time  when  all  workers  must  soberly  face  the  grave  impor- 
tance of  their  daily  work  and  decide  industrial  matters  with  a 
conscience  mindful  of  the  world-relation  of  each  act. 

The  problem  of  production  indispensable  to  preventing  unneces- 
sary slaughter  of  fellow-men  is  squarely  up  to  all  workers — aye,  to 
employes  and  employers.  Production  depends  upon  materials,  tools, 
management,  and  the  development  and  maintenance  of  industrial 
morale.  Willing  co-operation  comes  not  only  from  doing  justice  but 
from  receiving  justice.  The  worker  is  a  human  being  whose  life  has 
value  and  dignity  to  him.  He  is  willing  to  sacrifice  for  an  ideal  but 
not  for  the  selfish  gain  of  another.  Justice  begets  peace.  Con- 
sideration begets  co-operation.  These  conditions  are  essential  to  war 
production.  Production  is  necessary  to  win  the  war. 

Upon  the  government  and  upon  employers  falls  the  preponderance 
of  responsibility  for  securing  greatest  efficiency  from  workers.  Stand- 
ards of  human  welfare  and  consideration  of  the  human  side  of 
production  are  part  of  the  technique  of  efficient  production. 

Give  workers  a  decent  place  to  live,  protect  them  against  condi- 
tions which  take  all  their  wages  for  bare  existence,  give  them  agencies 
whereby  grievances  can  be  adjusted  and  industrial  justice  assured, 
make  it  plain  that  their  labor  counts  in  the  winning  of  a  war  for 
greater  freedom,  not  for  private  profiteering,  and  workers  can  be 
confidently  expected  to  do  their  part.  Workers  are  loyal.  They 
want  to  do  their  share  for  the  Republic  and  for  winning  the  war. 

This  is  Labor's  war.  It  must  be  won  by  Labor  and  every  stage 
in  the  fighting  and  the  final  victory  must  be  made  to  count  for  human- 
ity. That  result  only  can  justify  the  awful  sacrifice. 

We  present  these  matters  to  the  workers  of  free  America,  con- 
fidently relying  upon  the  splendid  spirit  and  understanding  which 
has  made  possible  present  progress  to  enable  us  to  fight  a  good  fight 
and  to  establish  principles  of  freedom  throughout  the  whole  world. 
We  regret  that  circumstances  make  impossible  continuous  close 
personal  relations  between  the  workers  of  America  and  those  of  the 
allied  countries  and  that  we  cannot  have  representation  in  the  Inter- 
Allied  Labor  Conference  about  to  co'nvene  in  London. 

Their  cause  and  purpose  are  our  cause  and  purpose.  We  cannot 
meet  with  representatives  of  those  who  are  aligned  against  us  in  this 
world-war  for  freedom,  but  we  hope  they  will  sweep  away  the  barriers 
which  they  have  raised  between  us.  Freedom  and  the  downfall  of 
autocracy  must  come  in  Middle  Europe. 


646  ECONOMICS  OF  WAR 

We  doubly  welcome  the  change  if  it  come  through  the  workers  of 
those  countries.  While  this  war  shall  last,  we  shall  be  working  and 
fighting  shoulder  to  shoulder  with  fellow- workers  of  Great  Britain, 
France,  and  Italy.  We  ask  the  workers  of  Russia  to  make  common 
cause  with  us,  for  our  purpose  is  their  purpose,  that  finally  the  freedom 
lovers  of  all  countries  may  make  the  world  safe  for  all  peoples  to  live 
in  freedom  and  safety. 

2.    BRITISH  LABOR  AND  THE  NEW  SOCIAL  ORDER 

It  behooves  the  Labor  party,  in  formulating  its  own  program  for 
reconstruction  after  the  war,  and  in  criticizing  the  various  preparations 
and  plans  that  are  being  made  by  the  present  government,  to  look 
at  the  problem  as  a  whole.  We  have  to  make  clear  what  it  is  that  we 
wish  to  construct.  It  is  important  to  emphasize  the  fact  that,  what- 
ever may  be  the  case  with  regard  to  other  political  parties,  our  detailed 
practical  proposals  proceed  from  definitely  held  principles. 

THE   END   OF   A  CIVILIZATION 

We  need  to  beware  of  patchwork.  The  view  of  the  Labor  party 
is  that  what  has  to  be  reconstructed  after  the  war  is  not  this  or  that 
government  department,  or  this  or  that  piece  of  social  machinery, 
but,  so  far  as  Britain  is  concerned,  society  itself.  The  individual 
worker,  or  for  that  matter  the  individual  statesman,  immersed  in  daily 
routine — like  the  individual  soldier  in  a  battle — easily  fails  to  under- 
stand the  magnitude  and  far-reaching  importance  of  what  is  taking 
place  around  him.  How  does  it  fit  together  as  a  whole  ?  How  does 
it  look  from  a  distance?  Count  Okuma,  one  of  the  oldest,  most 
experienced,  and  ablest  of  the  statesmen  of  Japan,  watching  the 
present  conflict  from  the  other  side  of  the  globe,  declares  it  to  be 
nothing  less  than  the  death  of  European  civilization.  Just  as  in 
the  past  the  civilization  of  Babylon,  Egypt,  Greece,  Carthage,  and 
the  great  Roman  empire  have  been  successively  destroyed,  so,  in  the 
judgment  of  this  detached  observer,  the  civilization  of  all  Europe  is 
even  now  receiving  its  death  blow.  We  of  the  Labor  party  can  so  far 
agree  in  this  estimate  as  to  recognize,  in  the  present  world  catastrophe, 
if  not  the  death,  in  Europe,  of  civilization  itself,  at  any  rate  the  cul- 
mination and  collapse  of  a  distinctive  industrial  civilization,  which  the 
workers  will  not  seek  to  reconstruct.  At  such  times  of  crisis  it  is 
easier  to  slip  into  ruin  than  to  progress  into  higher  forms  of  organiza- 
tion. That  is  the  problem  as  it  presents  itself  to  the  Labor  party. 


AFTER-THE-WAR  PROBLEMS  647 

What  this  war  is  consuming  is  not  merely  the  security,  the  homes, 
the  livelihood,  and  the  lives  of  millions  of  innocent  families,  and  an 
enormous  proportion  of  all  the  accumulated  wealth  of  the  world,  but 
also  the  very  basis  of  the  peculiar  social  order  in  which  it  has  arisen. 
The  individualist  system  of  capitalist  production,  based  on  the  private 
ownership  and  competitive  administration  of  land  and  capital,  with 
its  reckless  "profiteering"  and  wage-slavery;  with  its  glorification  of 
the  unhampered  struggle  for  the  means  of  life  and  its  hypocritical 
pretense  of  the  "survival  of  the  fittest";  with  the  monstrous  inequal- 
ity of  circumstances  which  it  produces  and  the  degradation  and 
brutalization,  both  moral  and  spiritual,  resulting  therefrom,  may,  we 
hope,  indeed  have  received  a  death  blow.  With  it  must  go  the 
political  system  and  ideas  in  which  it  naturally  found  expression. 
We  of  the  Labor  party,  whether  in  opposition  or  in  due  time  called 
upon  to  form  an  administration,  will  certainly  lend  no  hand  to  its 
revival.  On  the  contrary,  we  shall  do  our  utmost  to  see  that  it  is 
buried  with  the  millions  whom  it  has  done  to  death.  If  we  in  Britain 
are  to  escape  from  the  decay  of  civilization  itself,  which  the  Japanese 
statesman  foresees,  we  must  ensure  that  what  is  presently  to  be  built 
up  is  a  new  social  order,  based  not  on  fighting  but  on  fraternity — not 
on  the  competitive  struggle  for  the  means  of  bare  life,  but  on  a  deliber- 
ately planned  co-operation  in  production  and  distribution  for  the 
benefit  of  all  who  participate  by  hand  or  by  brain — not  on  the  utmost 
possible  inequality  of  riches,  but  on  a  systematic  approach  toward  a 
healthy  equality  of  material  circumstances  for  every  person  born  into 
the  world — not  on  an  enforced  dominion  over  subject  nations,  subject 
races,  subject  colonies,  subject  classes,  or  a  subject  sex,  but,  in 
industry  as  well  as  in  government,  on  that  equal  freedom,  that  general 
consciousness  of  consent,  and  that  widest  possible  participation  in 
power,  both  economic  and  political,  which  is  characteristic  of  democ- 
racy. We  do  not,  of  course,  pretend  that  it  is  possible,  even  after 
the  drastic  clearing  away  that  is  now  going  on,  to  build  society  anew 
in  a  year  or  two  of  feverish  "reconstruction."  What  the  Labor  party 
intends  to  satisfy  itself  about  is  that  each  brick  that  it  helps  to  lay 
shall  go  to  erect  the  structure  that  it  intends,  and  no  other. 

THE  PILLARS   OF   THE   HOUSE 

We  need  'not  here  recapitulate,  one  by  one,  the  different  items  in 
the  Labor  party's  program,  which  successive  party  conferences  have 
adopted.  These  proposals,  some  of  them  in  various  publications 


648  ECONOMICS  OF  WAR 

worked  out  in  practical  detail,  are  often  carelessly  derided  as  imprac- 
ticable, even  by  the  politicians  who  steal  them  piecemeal  from  us! 
The  members  of  the  Labor  party,  themselves  actually  working  by 
hand  or  by  brain,  in  close  contact  with  the  facts,  have  perhaps  at  all 
times  a  more  accurate  appreciation  of  what  is  practicable,  in  industry 
as  in  politics,  than  those  who  depend  solely  on  academic  instruction 
or  are  biased  by  great  possessions.  But  today  no  man  dares  to  say 
that  anything  is  impracticable.  The  war,  which  has  scared  the  old 
political  parties  right  out  of  their  dogmas,  has  taught  every  statesman 
and  every  government  official,  to  his  enduring  surprise,  how  very 
much  more  can  be  done  along  the  lines  that  we  have  laid  down  than 
he  had  ever  before  thought  possible.  What  we  now  promulgate  as 
our  policy,  whether  for  opposition  or  for  office,  is  not  merely  this  or 
that  specific  reform,  but  a  deliberately  thought  out,  systematic,  and 
comprehensive  plan  for  that  immediate  social  rebuilding  which  any 
ministry,  whether  or  not  it  desires  to  grapple  with  the  problem,  will 
be  driven  to  undertake.  The  four  pillars  of  the  house  that  we 
propose  to  erect,  resting  upon  the  common  foundation  of  the  Demo- 
cratic control  of  society  in  all  its  activities,  may  be  termed, 
respectively: 

A.  The  universal  enforcement  of  the  national  minimum 

B.  The  Democratic  control  of  industry 

C.  The  revolution  in  national  finance 

D.  The  surplus  wealth  for  the  common  good 

The  various  detailed  proposals  of  the  Labor  party,  herein  briefly 
summarized,  rest  on  these  four  pillars,  and  can  best  be  appreciated  in 
connection  with  them. 

A.      THE  UNIVERSAL  ENFORCEMENT   OF   A  NATIONAL  MINIMUM 

The  first  principle  of  the  Labor  party — in  significant  contrast  with 
those  of  the  Capitalist  system,  whether  expressed  by  the  Liberal  or  by 
the  Conservative  party — is  the  securing  to  every  member  of  the  com- 
munity, in  good  times  and  bad  alike  (and  not  only  to  the  strong  and 
able,  the  well-born  or  the  fortunate),  of  all  the  requisites  of  healthy 
life  and  worthy  citizenship.  This  is  in  no  sense  a  "class"  proposal. 
Such  an  amount  of  social  protection  of  the  individual,  however  poor 
and  lowly,  from  birth  to  death,  is,  as  the  economist  now  knows,  as 
indispensable  to  fruitful  co-operation  as  it  is  to  successful  combination; 
and  it  affords  the  only  complete  safeguard  against  that  insidious 
degradation  of  the  standard  of  life,  which  is  the  worst  economic  and 


AFTER-THE-WAR  PROBLEMS  649 

social  calamity  to  which  any  community  can  be  subjected.  We  are 
members,  one  of  another.  No  man  liveth  to  himself  alone.  If  any, 
even  the  humblest,  is  made  to  suffer,  the  whole  community  and  every 
one  of  us,  whether  or  not  we  recognize  the  fact,  is  thereby  injured. 
Generation  after  generation  this  has  been  the  cornerstone  of  the  faith 
of  Labor.  It  will  be  the  guiding  principle  of  any  Labor  government. 
The  legislative  regulation  of  employment. — Thus  it  is  that  the 
Labor  party  to-day  stands  for  the  universal  application  of  the  policy 
of  the  national  minimum,  to  which  (as  embodied  in  the  successive 
elaborations  of  the  Factory,  Mines,  Railways,  Shops,  Merchant 
Shipping,  and  Truck  acts,  the  Public  Health,  Housing,  and  Education 
acts  and  the  Minimum  Wage  Act — all  of  them  aiming  at  the  enforce- 
ment of  at  least  the  prescribed  minimum  of  leisure,  health,  educa- 
tion, and  subsistence)  the  spokesmen  of  Labor  have  already  gained 
the  support  of  the  enlightened  statesmen  and  economists  of  the  world. 
All  these  laws  purporting  to  protect  against  extreme  degradation  of 
the  standard  of  life  need  considerable  improvement  and  extension, 
while  their  administration  leaves  much  to  be  desired.  For  instance, 
the  Workmen's  Compensation  Act  fails  shamefully,  not  merely  to 
secure  proper  provision  for  all  the  victims  of  accident  and  industrial 
disease,  but,  what  is  much  more  important,  does  not  succeed  in  pre- 
venting their  continual  increase.  The  amendment  and  consolidation 
of  the  Factories  and  Workshops  acts,  with  their  extension  to  all 
employed  persons,  is  long  overdue,  and  it  will  be  the  policy  of  Labor 
greatly  to  strengthen  the  staff  of  inspectors,  especially  by  the  addition 
of  more  men  and  women  of  actual  experience  of  the  workshop  and  the 
mine.  The  Coal  Mines  (Minimum  Wage)  Act  must  certainly  be 
maintained  in  force,  and  suitably  amended,  so  as  both  to  ensure 
greater  uniformity  of  conditions  among  the  several  districts,  and  to 
make  the  district  minimum  in  all  cases  an  effective  reality.  The 
same  policy  will,  in  the  interests  of  the  agricultural  laborers,  dictate 
the  perpetuation  of  the  legal  wage  clauses  of  the  new  corn  law  just 
passed  for  a  term  of  five  years,  and  the  prompt  amendment  of  any 
defects  that  may  be  revealed  in  their  working.  And,  in  view  of  the 
fact  that  many  millions  of  wage  earners,  notably  women  and  the  less 
skilled  workmen  in  various  occupations,  are  unable  by  combination  to 
obtain  wages  adequate  for  decent  maintenance  in  health,  the  Labor 
party  intends  to  see  to  it  that  the  Trade  Boards  Act  is  suitably 
amended  and  made  to  apply  to  all  industrial  employments  in  which 
any  considerable  number  of  those  employed  obtain  less  than  thirty 


650  ECONOMICS  OF  WAR 

shillings  per  week.  This  minimum  of  not  less  than  thirty  shillings 
•  per  week  (which  will  need  revision  according  to  the  level  of  prices) 
ought  to  be  the  very  lowest  statutory  base  line  for  the  least  skilled 
adult  workers,  men  or  women,  in  any  occupation,  in  all  parts  of  the 
United  Kingdom. 

But  the  coming  industrial  dislocation,  which  will  inevitably 
follow  the  discharge  from  war  service  of  half  of  all  the  working  popu- 
lation, imposes  new  obligations  upon  the  community.  The  demobi- 
lization and  discharge  of  the  eight  million  wage  earners  now  being 
paid  from  public  funds,  either  for  service  with  the  colors  or  in  munition 
work  and  other  war  trades,  will  bring  to  the  whole  wage-earning  class 
grave  peril  of  unemployment,  reduction  of  wages,  and  a  lasting  degra- 
dation of  the  standard  of  life,  which  can  be  prevented  only  by 
deliberate  national  organization.  The  Labor  party  has  repeatedly 
called  upon  the  present  government  to  formulate  its  plan,  and  to  make 
in  advance  all  arrangements  necessary  for  coping  with  so  unparalleled 
a  dislocation.  The  policy  to  which  the  Labor  party  commits  itself  is 
unhesitating  and  uncompromising.  It  is  plain  that  regard  should  be 
had,  in  stopping  government  orders,  reducing  the  staff  of  the  national 
factories,  and  demobilizing  the  army,  to  the  actual  state  of  employ- 
ment in  particular  industries  and  in  different  districts,  so  as  both  to 
release  first  the  kinds  of  labor  most  urgently  required  for  the  revival 
of  peace  production  and  to  prevent  any  congestion  of  the  market.  It 
is  no  less  imperative  that  suitable  provision  against  being  turned 
suddenly  adrift  without  resources  should  be  made,  not  only  for  the 
soldiers,  but  also  for  the  three  million  operatives  in  munition  work  and 
other  war  trades  who  will  be  discharged  long  before  most  of  the  army 
can  be  disbanded.  On  this  important  point,  which  is  the  most  urgent 
of  all,  the  present  government  has,  we  believe,  down  to  the  present 
hour,  formulated  no  plan,  and  come  to  no  decision,  and  neither  the 
Liberal  nor  the  Conservative  party  has  apparently  deemed  the  matter 
worthy  of  agitation.  Any  government  which  should  allow  the 
discharged  soldier  or  munition  worker  to  fall  into  the  clutches  of 
charity  or  the  Poor  law  would  have  to  be  instantly  driven  from  office 
by  an  outburst  of  popular  indignation.  What  every  one  of  them  will 
look  for  is  a  situation  in  accordance  with  his  capacity. 

Securing  employment  for  all. — The  Labor  party  insists — as  no 
other  political  party  has  thought  fit  to  do — that  the  obligation  to  find 
suitable  employment  in  productive  work  for  all  these  men  and  women 
rests  upon  the  government  for  the  time  being.  The  work  of  resettling 


AFTER-THE-WAR  PROBLEMS  651 

the  disbanded  soldiers  and  discharged  munition  workers  into  new 
situations  is  a  national  obligation;  and  the  Labor  party  emphatically 
protests  against  its  being  regarded  as  a  matter  for  private  charity.  It 
strongly  objects  to  this  public  duty  being  handed  over  either  to  com- 
mittees of  philanthropists  or  benevolent  societies,  or  to  any  of  the 
military  or  recruiting  authorities.  The  policy  of  the  Labor  party  in 
this  matter  is  to  make  the  utmost  use  of  the  trade  unions,  and,  equally 
for  the  brainworkers,  of  the  various  professional  associations.  In  view 
of  the  fact  that,  in  any  trade,  the  best  organization  for  placing  men  in 
situations  is  a  national  trade  union  having  local  branches  throughout 
the  kingdom,  every  soldier  should  be  allowed,  if  he  chooses,  to  have 
a  duplicate  of  his  industrial  discharge  notice  sent,  one  month  before 
the  date  fixed  for  his  discharge,  to  the  secretary  of  the  trade  union  to 
which  he  belongs  or  wishes  to  belong.  Apart  from  this  use  of  the 
trade  union  (and  a  corresponding  use  of  the  professional  association) 
the  government  must,  of  course,  avail  itself  of  some  such  public 
machinery  as  that  of  the  employment  exchanges;  but  before  the 
existing  exchanges  (which  will  need  to  be  greatly  extended)  can 
receive  the  co-operation  and  support  of  the  organized  labor  move- 
ment, without  which  their  operations  can  never  be  fully  successful, 
it  is  imperative  that  they  should  be  drastically  reformed,  on  the  lines 
laid  down  in  the  Demobilization  Report  of  the  "Labor  after  the  War" 
Joint  Committee;  and,  in  particular,  that  each  exchange  should  be 
placed  under  the  supervision  and  control  of  a  joint  committee  of 
employers  and  trade  unionists  in  equal  numbers. 

The  responsibility  of  the  government,  for  the  time  being,  in  the 
grave  industrial  crisis  that  demobilization  will  produce,  goes,  however, 
far  beyond  the  eight  million  men  and  women  whom  the  various 
departments  will  suddenly  discharge  from  their  own  service.  The 
effect  of  this  peremptory  discharge  on  all  the  other  workers  has  also 
to  be  taken  into  account.  To  the  Labor  party  it  will  seem  the  supreme 
concern  of  the  government  of  the  day  to  see  to  it  that  there  shall  be 
as  a  result  of  the  gigantic  "General  Post"  which  it  will  itself  have 
deliberately  set  going,  nowhere  any  degradation  of  the  standard  of 
life.  The  government  has  pledged  itself  to  restore  the  trade  union 
conditions  and  "pre-war  practices"  of  the  workshop,  which  the  trade 
unions  patriotically  gave  up  at  the  direct  request  of  the  government 
itself;  and  this  solemn  pledge  must  be  fulfilled,  of  course,  in  the  spirit 
as  well  as  in  the  letter.  The  Labor  party,  moreover,  holds  it  to  be 
the  duty  of  the  government  of  the  day  to  take  all  necessary  steps  to 


652  .     ECONOMICS  OF  WAR 

prevent  the  standard  rates  of  wages,  in  any  trade  or  occupation 
whatsoever,  from  suffering  any  reduction,  relatively  to  the  contem- 
porary cost  of  living.  Unfortunately,  the  present  government,  like 
the  Liberal  and  Conservative  parties,  so  far  refuses  to  speak  on  this 
important  matter  with  any  clear  voice.  We  claim  that  it  should  be 
a  cardinal  point  of  government  policy  to  make  it  plain  to  every 
capitalist  employer  that  any  attempt  to  reduce  the  customary  rates 
of  wages  when  peace  comes,  or  to  take  advantage  of  the  dislocation 
of  demobilization  to  worsen  the  conditions  of  employment  in  any  grade 
whatsoever,  will  certainly  lead  to  embittered  industrial  strife,  which 
will  be  in  the  highest  degree  detrimental  to  the  national  interests; 
and  that  the  government  of  the  day  will  not  hesitate  to  take  all 
necessary  steps  to  avert  such  a  calamity.  In  the  great  impending 
crisis  the  government  of  the  day  should  not  only,  as  the  greatest 
employer  of  both  brainworkers  and  manual  workers,  set  a  good 
example  in  this  respect,  but  should  also  actively  seek  to  influence 
private  employers  by  proclaiming  in  advance  that  it  will  not  itself 
attempt  to  lower  the  standard  rates  or  conditions  in  public  employ- 
ment; by  announcing  that  it  will  insist  on  the  most  rigorous  obser- 
vance of  the  fair-wages  clause  in  all  public  contracts,  and  by  explicitly 
recommending  every  local  authority  to  adopt  the  same  policy. 

But  nothing  is  more  dangerous  to  the  standard  of  life,  or  so  destruc- 
tive of  those  minimum  conditions  of  healthy  existence,  which  must  in 
the  interests  of  the  community  be  assured  to  every  worker,  than  any 
widespread  or  continued  unemployment.  It  has  always  been  a 
fundamental  principle  of  the  Labor  party  (a  point  on  which,  singularly 
enough,  it  has  not  been  followed  by  either  of  the  other  political  parties) 
that,  in  a  modern  industrial  community,  it  is  one  of  the  foremost 
obligations  of  the  government  to  find,  for  every  willing  worker, 
whether  by  hand  or  by  brain,  productive  work  at  standard  rates. 

It  is  accordingly  the  duty  of  the  government  to  adopt  a  policy  of 
deliberately  and  systematically  preventing  the  occurrence  of  unem- 
ployment, instead  of  (as  heretofore)  letting  unemployment  occur,  and 
then  seeking,  vainly  and  expensively,  to  relieve  the  unemployed.  It 
is  now  known  that  the  government  can,  if  it  chooses,  arrange  the 
public  works  and  the  orders  of  national  departments  and  local  author- 
ities in  such  a  way  as  to  maintain  the  aggregate  demand  for  labor  in 
the  whole  kingdom  (including  that  of  capitalist  employers)  approxi- 
mately at  a  uniform  level  from  year  to  year;  and  it  is  therefore  a 
primary  obligation  of  the  government  to  prevent  any  considerable  or 


AFTER-THE-WAR  PROBLEMS  653 

widespread  fluctuations  in  the  total  numbers  employed  in  times  of 
good  or  bad  trade.  But  this  is  not  all.  In  order  to  prepare  for  the 
possibility  of  there  being  any  unemployment,  either  in  the  course  of 
demobilization  or  in  the  first  years  of  peace,  it  is  essential  that  the 
government  should  make  all  necessary  preparations  for  putting 
instantly  in  hand,  directly  or  through  the  local  authorities,  such 
urgently  needed  public  works  as  (a)  the  rehousing  of  the  population 
alike  in  rural  districts,  mining  villages,  and  town  slums,  to  the  extent, 
possibly,  of  a  million  new  cottages  and  an  outlay  of  300  millions 
sterling;  (b)  the  immediate  making  good  of  the  shortage  of  schools, 
training  colleges,  technical  colleges,  etc.,  and  the  engagement  of  the 
necessary  additional  teaching,  clerical,  and  administrative  staffs; 
(c)  new  roads;  (d)  light  railways;  (e)  the  unification  and  reorganiza- 
tion of  the  railway  and  canal  system;  (/)  afforestation;  (g)  the  recla- 
mation of  land;  (h)  the  development  and  better  equipment  of  our 
ports  and  harbors;  («')  the  opening  up  of  access  to  land  by  co-operative 
small  holdings  and  in  other  practicable  ways.  Moreover,  in  order  to 
relieve  any  pressure  of  an  overstocked  labor  market,  the  opportunity 
should  be  taken,  if  unemployment  should  threaten  to  become  wide- 
spread, (a)  immediately  to  raise  the  school-leaving  age  to  sixteen; 
(b)  greatly  to  increase  the  number  of  scholarships  and  bursaries  for 
secondary  and  higher  education;  and  (c)  substantially  to  shorten  the 
hours  of  labor  of  all  young  persons,  even  to  a  greater  extent  than  the 
eight  hours  per  week  contemplated  in  the  new  Education  Bill,  in  order 
to  enable  them  to  attend  technical  and  other  classes  in  the  daytime. 
Finally,  wherever  practicable,  the  hours  of  adult  labor  should  be 
reduced  to  not  more  than  forty-eight  per  week,  without  reduction  of 
the  standard  rates  of  wages.  There  can  be  no  economic  or  other 
justification  for  keeping  any  man  or  woman  to  work  for  long  hours, 
or  at  overtime,  while  others  are  unemployed. 

Social  insurance  against  unemployment. — In  so  far  as  the  govern- 
ment fails  to  prevent  unemployment — whenever  it  finds  it  impossible 
to  discover  for  any  willing  worker,  man  or  woman,  a  suitable  situation 
at  the  standard  rate — the  Labor  party  holds  that  the  government 
must,  in  the  interest  of  the  community  as  a  whole,  provide  him  or  her 
with  adequate  maintenance,  either  with  such  arrangements  for 
honorable  employment  or  with  such  useful  training  as  may  be  found 
practicable,  according  to  age,  health,  and  previous  occupation.  In 
many  ways  the  best  form  of  provision  for  those  who  must  be  unem- 
ployed, because  the  industrial  organization  of  the  community  so  far 


654  ECONOMICS  OF  WAR 

breaks  down  as  to  be  temporarily  unable  to  set  them  to  work,  is  the 
out-of-work  benefit  afforded  by  a  well-administered  trade  union. 
This  is  a  special  tax  on  the  trade  unionists  themselves  which  they  have 
voluntarily  undertaken,  but  toward  which  they  have  a  right  to  claim 
a  public  subvention — a  subvention  which  was  actually  granted  by 
Parliament  (though  only  to  the  extent  of  a  couple  of  shillings  or  so 
per  week)  under  Part  II  of  the  Insurance  Act.  The  arbitrary  with- 
drawal by  the  government  in  1915  of  this  statutory  right  of  the  trade 
unions  was  one  of  the  least  excusable  of  the  war  economies;  and  the 
Labor  party  must  insist  on  the  resumption  of  this  subvention  im- 
mediately the  war  ceases,  and  on  its  increase  to  at  least  hah"  the 
amount  spent  in  out-of-work  benefit.  The  extension  of  state  unem- 
ployment insurance  to  other  occupations  may  afford  a  convenient 
method  of  providing  for  such  of  the  unemployed,  especially  in  the 
case  of  badly  paid  women  workers  and  the  less  skilled  men,  whom  it  is 
difficult  to  organize  in  trade  unions.  But  the  weekly  rate  of  the  state 
unemployment  benefit  needs,  in  these  days  of  high  prices,  to  be  con- 
siderably raised;  while  no  industry  ought  to  be  compulsorily  brought 
within  its  scope  against  the  declared  will  of  the  workers  concerned, 
and  especially  of  their  trade  unions.  In  one  way  or  another  remunera- 
tive employment  or  honorable  maintenance  must  be  found  for  every 
willing  worker,  by  hand  or  by  brain,  in  bad  times  as  well  as  in  good. 
It  is  clear  that,  in  the  twentieth  century,  there  must  be  no  question 
of  driving  the  unemployed  to  anything  so  obsolete  and  discredited  as 
either  private  charity,  with  its  haphazard  and  ill-considered  doles, 
or  the  Poor  law,  with  ^he  futilities  and  barbarities  of  its  "Stone 
Yard,"  or  its  "Able-Bodied  Test  Workhouse."  Only  on  the  basis 
of  a  universal  application  of  the  policy  of  the  national  minimum, 
affording  complete  security  against  destitution,  in  sickness  and  health, 
in  good  times  and  bad  alike,  to  every  member  of  the  community  of 
whatever  age  or  sex,  can  any  worthy  social  order  be  built  up. 

B.      THE   DEMOCRATIC   CONTROL   OF   INDUSTRY 

The  universal  application  of  the  policy  of  the  national  minimum 
is,  of  course,  only  the  first  of  the  pillars  of  the  house  that  the  Labor 
party  intends  to  see  built.  What  marks  off  this  party  most  dis- 
tinctively from  any  of  the  other  political  parties  is  its  demand  for  the 
full  and  genuine  adoption  of  the  principle  of  democracy.  The  first 
condition  of  democracy  is  effective  personal  freedom.  This  has 
suffered  so  many  encroachments  during  the  war  that  it  is  necessary 


AFTER-THE-WAR  PROBLEMS  655 

to  state  with  clearness  that  the  complete  removal  of  all  the  war-time 
restrictions  on  freedom  of  speech,  freedom  of  publication,  freedom  of 
the  press,  freedom  of  travel,  and  freedom  of  choice  of  place  of  residence 
and  kind  of  employment  must  take  place  the  day  after  peace  is 
declared.  The  Labor  party  declares  emphatically  against  any  con- 
tinuance of  the  Military  Service  acts  a  moment  longer  than  the 
imperative  requirements  of  the  war  excuse.  But  individual  freedom 
is  of  little  use  without  complete  political  rights.  The  Labor  party  sees 
its  repeated  demands  largely  conceded  in  the  present  Representation 
of  the  People  Act,  but  not  yet  wholly  satisfied.  The  party  stands,  as 
heretofore,  for  complete  adult  suffrage,  with  not  more  than  a  three 
months'  residential  qualification,  for  effective  provision  for  absent 
electors  to  vote,  for  absolutely  equal  rights  for  both  sexes,  for  the  same 
freedom  to  exercise  civic  rights  for  the  "common  soldier"  as  for  the 
officer,  for  shorter  Parliaments,  for  the  complete  abolition  of  the  House 
of  Lords,  and  for  a  most  strenuous  opposition  to  any  new  second 
chamber,  whether  elected  or  not,  having  in  it  any  element  of  heredity 
or  privilege,  or  of  the  control  of  the  House  of  Commons  by  any  party 
or  class.  But  unlike  the  Conservative  and  Liberal  parties,  the  Labor 
party  insists  on  democracy  in  industry  as  well  as  in  government.  It 
demands  the  progressive  elimination  from  the  control  of  industry  of 
the  private  capitalist,  individual  or  joint-stock;  and  the  setting  free 
of  all  who  work,  whether  by  hand  or  by  brain,  for  the  service  of  the 
community,  and  of  the  community  only.  And  the  Labor  party 
refuses  absolutely  to  believe  that  the  British  people  will  permanently 
tolerate  any  reconstruction  or  perpetuation  of  the  disorganization, 
waste,  and  inefficiency  involved  in  the  abandonment  of  British  indus- 
try to  a  jostling  crowd  of  separate  private  employers,  with  their 
minds  bent,  not  on  the  service  of  the  community,  but — by  the  very 
law  of  their  being — only  on  the  utmost  possible  profiteering.  What 
the  nation  needs  is  undoubtedly  a  great  bound  onward  in  its  aggregate 
productivity.  But  this  cannot  be  secured  merely  by  pressing  the 
manual  workers  to  more  strenuous  toil,  or  even  by  encouraging  the 
"  Captains  of  Industry"  to  a  less  wasteful  organization  of  their  several 
enterprises  on  a  profit-making  basis.  What  the  Labor  party  looks 
to  is  a  genuinely  scientific  reorganization  of  the  nation's  industry,  no 
longer  deflected  by  individual  profiteering,  on  the  basis  of  the  common 
ownership  of  the  means  of  production,  the  equitable  sharing  of  the 
proceeds  among  all  who  participate  in  any  capacity  and  only  among 
these,  and  the  adoption,  in  particular  services  and  occupations,  of 


656  ECONOMICS  OF  WAR 

those  systems  and  methods  of  administration  and  control  that  may 
be  found,  in  practice,  best  to  promote  the  public  interest. 

Immediate  nationalization. — The  Labor  party  stands  not  merely 
for  the  principle  of  the  common  ownership  of  the  nation's  land,  to  be 
applied  as  suitable  opportunities  occur,  but  also,  specifically,  for  the 
immediate  nationalization  of  railways,  mines,  and  the  production  of 
electrical  power.  We  hold  that  the  very  foundation  of  any  successful 
reorganization  of  British  industry  must  necessarily  be  found  in  the 
provision  of  the  utmost  facilities  for  transport  and  communication, 
the  production  of  power  at  the  cheapest  possible  rate,  and  the  most 
economical  supply  of  both  electrical  energy  and  coal  to  every  corner 
of  the  kingdom.  Hence  the  Labor  party  stands,  unhesitatingly,  for 
the  national  ownership  and  administration  of  the  railways  and  canals, 
and  their  union,  along  with  harbors  and  roads,  and  the  posts  and 
telegraphs — not  to  say  also  the  great  lines  of  steamers  which  could 
at  once  be  owned,  if  not  immediately  directly  managed  in  detail,  by 
the  government — in  a  united  national  service  of  communication  and 
transport;  to  be  worked,  unhampered  by  capitalist,  private,  or  purely 
local  interests  (and  with  a  steadily  increasing  participation  of  the 
organized  workers  in  the  management,  both  central  and  local), 
exclusively  for  the  common  good.  If  any  government  should  be  so 
misguided  as  to  propose,  when  peace  comes,  to  hand  the  railways  back 
to  the  shareholders;  or  should  show  itself  so  spendthrift  of  the  nation's 
property  as  to  give  these  shareholders  any  enlarged  franchise  by 
presenting  them  with  the  economies  of  unification  or  the  profits  of 
increased  railway  rates;  or  so  extravagant  as  to  bestow  public  funds 
on  the  re-equipment  of  privately  owned  lines — all  of  which  things  are 
now  being  privately  intrigued  for  by  the  railway  interests — the  Labor 
party  will  offer  any  such  project  the  most  strenuous  opposition.  The 
railways  and  canals,  like  the  roads,  must  henceforth  belong  to  the 
public. 

In  the  production  of  electricity,  for  cheap  power,  light,  and  heat- 
ing this  country  has  so  far  failed,  because  of  hampering  private 
interests,  to  take  advantage  of  science.  Even  in  the  largest  cities  we 
still  "peddle"  our  electricity  on  a  contemptibly  small  scale.  What  is 
called  for,  immediately  after  the  war,  is  the  erection  of  a  score  of 
gigantic  "super-power  stations,"  which  could  generate,  at  incredibly 
cheap  rates,  enough  electricity  for  the  use  of  every  industrial  estab- 
lishment and  every  private  household  in  Great  Britain;  the  present 
municipal  and  joint-stock  electrical  plants  being  universally  linked  up 


AFTER-THE-WAR  PROBLEMS  657 

and  used  for  local  distribution.  This  is  inevitably  the  future  of 
electricity.  It  is  plain  that  so  great  and  so  powerful  an  enterprise, 
affecting  every  industrial  enterprise  and,  eventually,  every  household, 
must  not  be  allowed  to  pass  into  the  hands  of  private  capitalists. 
They  are  already  pressing  the  government  for  the  concession,  and 
neither  the  Liberal  nor  the  Conservative  party  has  yet  made  up  its 
mind  to  a  refusal  of  such  a  new  endowment  of  profiteering  in  what  will 
presently  be  the  life-blood  of  modern  productive  industry.  The 
Labor  party  demands  that  the  production  of  electricity  on  the  neces- 
sary gigantic  scale  shall  be  made  from  the  start  (with  suitable  arrange- 
ments for  municipal  co-operation  in  local  distribution)  a  national 
enterprise,  to  be  worked  exclusively  with  the  object  of  supplying 
the  whole  kingdom  with  the  cheapest  possible  power,  light,  and 
heat.1 

But  with  railways  and  the  generation  of  electricity  in  the  hands  of 
the  public,  it  would  be  criminal  folly  to  leave  to  the  present  1,500 
colliery  companies  the  power  of  "  holding  up  "  the  coal  supply.  These 
are  now  all  working  under  public  control,  on-  terms  that  virtually 
afford  to  their  shareholders  a  statutory  guarantee  of  their  swollen 
incomes.  The  Labor  party  demands  the  immediate  nationalization 
of  mines,  the  extraction  of  coal  and  iron  being  worked  as  a  public 
service  (with  a  steadily  increasing  participation  in  the  management, 
both  central  and  local,  of  the  various  grades  of  persons  employed), 
and  the  whole  business  of  the  retail  distribution  of  household  coal 
being  undertaken,  as  a  local  public  service,  by  the  elected  municipal 
or  county  councils.  And  there  is  no  reason  why  coal  should  fluctuate 
in  price  any  more  than  railway  fares,  or  why  the  consumer  should  be 
made  to  pay  more  in  winter  than  in  summer,  or  in  one  town  than 
another.  What  the  Labor  party  would  aim  at  is,  for  the  household 
coal  of  standard  quality,  a  fixed  and  uniform  price  for  the  whole  king- 
dom, payable  by  rich  and  poor  alike,  as  unalterable  as  the  penny 
postage  stamp. 

But  the  sphere  of  immediate  nationalization  is  not  restricted  to 
these  great  industries.  We  shall  never  succeed  in  putting  the  gigantic 
system  of  health  insurance  on  a  proper  footing,  or  secure  a  clear  field 
for  the  beneficent  work  of  the  Friendly  Societies,  or  gain  a  free  hand 
for  the  necessary  development  of  the  urgently  called  for  ministry 
of  health  and  the  local  public  health  service,  until  the  nation  ex- 
propriates the  profit-making  industrial  insurance  companies,  which 

1  ED.  NOTE— Cf.  Section  XXXIII,  p.  340. 


658  ECONOMICS  OF  WAR 

now  so  tyrannously  exploit  the  people  with  their  wasteful  house-to- 
house  industrial  life  assurance.  Only  by  such  an  expropriation  of  life 
assurance  companies  can  we  secure  the  universal  provision,  free  from 
the  burdensome  toll  of  weekly  pence,  of  the  indispensable  funeral 
benefit.  Nor  is  it  in  any  sense  a  "class"  measure.  Only  by  the 
assumption  by  a  state  department  of  the  whole  business  of  life  assur- 
ance can  the  millions  of  policy-holders  of  all  classes  be  completely 
protected  against  the  possibly  calamitous  results  of  the  depreciation 
of  securities  and  suspension  of  bonuses  which  the  war  is  causing. 
Only  by  this  means  can  the  great  staff  of  insurance  agents  find  their 
proper  place  as  civil  servants,  with  equitable  conditions  of  employ- 
ment, compensation  for  any  disturbance,  and  security  of  tenure,  in  a 
nationally  organized  public  service  for  the  discharge  of  the  steadily 
increasing  functions  of  the  government  in  vital  statistics  and  social 
insurance. 

In  quite  another  sphere  the  Labor  party  sees  the  key  to  temper- 
ance reform  in  taking  the  entire  manufacture  and  retailing  of  alcoholic 
drink  out  of  the  hands  of  those  who  find  profit  in  promoting  the  utmost 
possible  consumption.  This  is  essentially  a  case  in  which  the  people, 
as  a  whole,  must  deal  with  the  licensing  question  in  accordance  with 
local  opinion.  For  this  purpose,  localities  should  have  conferred  upon 
them  facilities:  (a)  to  prohibit  the  sale  of  liquor  within  their  bound- 
aries; (b)  to  reduce  the  number  of  licenses  and  regulate  the  conditions 
under  which  they  may  be  held;  and  (c)  if  a  locality  decides  that 
licenses  are  to  be  granted,  to  determine  whether  such  licenses  shall  be 
under  private  or  any  form  of  public  control. 

Control  of  capitalist  industry. — Meanwhile,  however,  we  ought  not 
to  throw  away  the  valuable  experience  now  gained  by  the  government 
in  its  assumption  of  the  importation  of  wheat,  wool,  metals,  and  other 
commodities,  and  in  its  control  of  the  shipping,  wollen,  leather,  clothing, 
boot  and  shoe,  milling,  baking,  butchering,  and  other  industries.  The 
Labor  party  holds  that,  whatever  may  have  been  the  shortcomings  of 
this  government  importation  and  control,  it  has  demonstrably  pre- 
vented a  lot  of  "profiteering."  Nor  can  it  end  immediately  on  the 
declaration  of  peace.  The  people  will  be  extremely  foolish  if  they 
ever  allow  their  indispensable  industries  to  slip  back  into  the  un- 
fettered control  of  private  capitalists,  who  are,  actually  at  the  instance 
of  the  government  itself,  now  rapidly  combining,  trade  by  trade,  into 
monopolist  trusts  which  may  presently  become  as  ruthless  in  their 
extortion  as  the  worst  American  examples.  Standing  as  it  does  for 


AFTER-THE-WAR  PROBLEMS  659 

the  democratic  control  of  industry,  the  Labor  party  would  think 
twice  before  it  sanctioned  any  abandonment  of  the  present  profitable 
centralization  of  purchase  of  raw  material;  of  the  present  carefully 
organized  "rationing,"  by  joint  committees  of  the  trades  concerned, 
of  the  several  establishments  with  the  materials  they  require;  of  the 
present  elaborate  system  of  "costing"  and  public  audit  of  manu- 
facturers' accounts,  so  as  to  stop  the  waste  heretofore  caused  by  the 
mechanical  inefficiency  of  the  more  backward  firms;  of  the  present 
salutary  publicity  of  manufacturing  processes  and  expenses  thereby 
ensured ;  and,  on  the  information  thus  obtained  (in  order  never  again 
to  revert  to  the  old-time  profiteering)  of  the  present  rigid  fixing,  for 
standardized  products,  of  maximum  prices  at  the  factory,  at  the  ware- 
house of  the  wholesale  trader,  and  in  the  retail  shop.  This  question 
of  the  retail  prices  of  household  commodities  is  emphatically  the  most 
practical  of  all  political  issues  to  the  woman  elector.  The  male  poli- 
ticians have  too  long  neglected  the  grievances  of  the  small  household, 
which  is  the  prey  of  every  profiteering  combination;  and  neither  the 
Liberal  nor  the  Conservative  party  promises,  in  this  respect,  any 
amendment.  This,  too,  is  in  no  sense  a  "class"  measure.  It  is,  so 
the  Labor  party  holds,  just  as  much  the  function  of  government,  and 
just  as  necessary  a  part  of  the  democratic  regulation  of  industry,  to 
safeguard  the  interests  of  the  community  as  a  whole,  and  those  of  all 
grades  and  sections  of  private  consumers,  in  the  matter  of  prices,  as 
it  is,  by  the  Factory  and  Trade  Boards  acts,  to  protect  the  rights  of 
the  wage-earning  producers  in  the  matter  of  wages,  hours  of  labor, 
and  sanitation. 

C.      THE   REVOLUTION   IN   NATIONAL  FINANCE 

In  taxation,  also,  the  interests  of  the  professional  and  housekeeping 
classes  are  at  one  with-those  of  the  manual  workers.  Too  long  has 
our  national  finance  been  regulated,  contrary  to  the  teaching  of  poli- 
tical economy,  according  to  the  wishes  of  the  possessing  classes  and 
the  profits  of  the  financiers.  The  colossal  expenditure  involved  in  the 
present  war  (of  which,  against  the  protest  of  the  Labor  party,  only  a 
quarter  has  been  raised  by  taxation,  while  three-quarters  have  been 
borrowed  at  onerous  rates  of  interest,  to  be  a  burden  on  the  nation's 
future)  brings  things  to  a  crisis.  When  peace  comes,  capital  will  be 
needed  for  all  sorts  of  social  enterprises,  and  the  resources  of  govern- 
ment will  necessarily  have  to  be  vastly  greater  than  they  were  before 
the  war.  Meanwhile  innumerable  new  private  fortunes  are  being 


66o  ECONOMICS  OF  WAR 

heaped  up  by  those  who  have  taken  advantage  of  the  nation's  needs; 
and  the  one-tenth  of  the  population  which  owns  nine-tenths  of  the 
riches  of  the  United  Kingdom,  far  from  being  made  poorer,  will 
find  itself,  in  the  aggregate,  as  a  result  of  the  war,  drawing  in  rent  and 
interest  and  dividends  a  larger  nominal  income  than  ever  before. 
Such  a  position  demands  a  revolution  in  national  finance.  How  are 
we  to  discharge  a  public  debt  that  may  well  reach  the  almost  incredible 
figure  of  seven  thousand  million  pounds  sterling,  and  at  the  same  time 
raise  an  annual  revenue  which,  for  local  as  well  as  central  government, 
must  probably  reach  one  thousand  millions  a  year  ?  It  is  over  this 
problem  of  taxation  that  the  various  political  parties  will  be  found  to 
to  be  most  sharply  divided. 

The  Labor  party  stands  for  such  a  system  of  taxation  as  will  yield 
all  the  necessary  revenue  to  the  government  without  encroaching  on 
the  prescribed  national  minimum  standard  of  life  of  any  family 
whatsoever,  without  hampering  production  or  discouraging  any  useful 
personal  effort,  and  with  the  nearest  possible  approximation  to 
equality  of  sacrifice.  We  definitely  repudiate  all  proposals  for  a  pro- 
tective tariff,  in  whatever  specious  guise  they  may  be  cloaked,  as  a 
device  for  burdening  the  consumer  with  unnecessarily  enhanced 
prices,  to  the  profit  of  the  capitalist  employer  or  landed  proprietor, 
who  avowedly  expects  his  profit  or  rent  to  be  increased  thereby.  We 
shall  strenuously  oppose  any  taxation,  of  whatever  kind,  which  would 
increase  the  price  of  food  or  of  any  other  necessary  of  life.  We  hold 
that  indirect  taxation  on  commodities,  whether  by  customs  or  excise, 
should  be  strictly  limited  to  luxuries,  and  concentrated  principally 
on  those  of  which  it  is  socially  desirable  that  the  consumption  should 
be  actually  discouraged.  We  are  at  one  with  the  manufacturer,  the 
farmer,  and  the  trader  in  objecting  to  taxes  interfering  with  produc- 
tion or  commerce,  or  hampering  transport  and  communication.  In 
all  these  matters — once  more  in  contrast  with  the  other  political 
parties,  and  by  no  means  in  the  interests  of  the  wage-earners  alone — 
the  Labor  party  demands  that  the  very  definite  teachings  of  economic 
science  should  no  longer  be  disregarded  as  they  have  been  in  the  past. 

For  the  raising  of  the  greater  part  of  the  revenue  now  required 
the  Labor  party  looks  to  the  direct  taxation  of  the  incomes  above 
the  necessary  cost  of  family  maintenance;  and,  for  the  requisite  effort 
to  pay  off  the  national  debt,  to  the  direct  taxation  of  private  fortunes, 
both  during  life  and  at  death.  The  income  tax  and  supertax  ought 
at  once  to  be  thoroughly  reformed  in  assessment  and  collection,  in 


AFTER-THE-WAR  PROBLEMS  66 1 

abatements  and  allowances,  and  in  graduation  and  differentiation, 
so  as  to  levy  the  required"  total  sum  in  such  a  way  as  to  make  the 
real  sacrifice  of  all  the  taxpayers  as  nearly  as  possible  equal.  This 
would  involve  assessment  by  families  instead  of  by  individual  persons, 
so  that  the  burden  is  alleviated  in  proportion  to  the  number  of  persons 
to  be  maintained.  It  would  involve  the  raising  of  the  present  unduly 
low  minimum  income  assessable  to  the  tax,  and  the  lightening  of  the 
present  unfair  burden  on  the  great  mass  of  professional  and  small 
trading  classes  by  a  new  scale  of  graduation,  rising  from  a  penny  in  the 
pound  on  the  smallest  assessable  income  up  to  sixteen  or  even  nine- 
teen shillings  in  the  pound  on  the  highest  income  of  the  millionaires. 
It  would  involve  bringing  into  assessment  the  numerous  windfalls  of 
profit  that  now  escape,  and  a  further  differentiation  between  essen- 
tially different  kinds  of  income.  The  excess-profits  tax  might  well  be 
retained  in  an  appropriate  form,  while,  so  long  as  mining  royalties 
exist,  the  mineral-rights  duty  ought  to  be  increased.  The  steadily 
rising  unearned  increment  of  urban  and  mineral  land  ought,  by  an 
appropriate  direct  taxation  of  land  values,  to  be  wholly  brought  into 
the  public  exchequer.  At  the  same  time,  for  the  service  and  redemp- 
tion of  the  national  debt,  the  death  duties  ought  to  be  regraduated, 
much  more  strictly  collected,  and  greatly  increased.  In  this  matter 
we  need,  in  fact,  completely  to  reverse  our  point  of  view,  and  to 
rearrange  the  whole  taxation  of  inheritance  from  the  standpoint  of 
asking  what  is  the  maximum  amount  that  any  rich  man  should  be 
permitted  at  death  to  divert,  by  his  will,  from  the  national  exchequer, 
which  should  normally  be  the  heir  to  all  private  riches  in  excess  of  a 
quite  moderate  amount  by  way  of  family  provision.  But  all  this 
will  not  suffice.  It  will  be  imperative  at  the  earliest  possible  moment 
to  free  the  nation  from  at  any  rate  the  greater  part  of  its  new  load  of 
interest-bearing  debt  for  loans  which  ought  to  have  been  levied  as 
taxation;  and  the  Labor  party  stands  for  a  special  capital  levy  to  pay 
off,  if  not  the  whole,  a  very  substantial  part,  of  the  entire  national 
debt — a  capital  levy  chargeable  like  the  death  duties  on  all  property, 
but  (in  order  to  secure  approximate  equality  of  sacrifice)  with  exemp- 
tion of  the  smallest  .savings,  and  for  the  rest  at  rates  very  steeply 
graduated,  so  as  to  take  only  a  small  contribution  from  the  little  people 
and  a  very  much  larger  percentage  from  the  millionaires. 

Over  this  issue  of  how  the  financial  burden  of  the  war  is  to  be 
borne,  and  how  the  necessary  revenue  is  to  be  raised,  the  greatest 
political  battles  will  be  fought.  In  this  matter  the  Labor  party 


662  ECONOMICS  OF  WAR 

claims  the  support  of  four-fifths  of  the  whole  nation,  for  the  interests 
of  the  clerk,  the  teacher,  the  doctor,  the  minister  of  religion,  the 
average  retail  shopkeeper  and  trader,  and  all  the  mass  of  those  living 
on  small  incomes  are  identical  with  those  of  the  artisan.  The  land- 
lords, the  financial  magnates,  the  possessors  of  great  fortunes,  will  not, 
as  a  class,  willingly  forego  the  relative  immunity  that  they  have  hither- 
to enjoyed.  The  present  unfair  subjection  of  the  co-operative  society 
to  an  excess-profits  tax  on  the  "profits"  which  it  has  never  made — 
specially  dangerous  as  "the  thin  end  of  the  wedge"  of  penal  taxation 
of  this  laudable  form  of  democratic  enterprise — will  not  be  abandoned 
without  a  struggle.  Every  possible  effort  will  be  made  to  juggle  with 
the  taxes,  so  as  to  place  upon  the  shoulders  of  the  mass  of  laboring 
folk  and  upon  the  struggling  households  of  the  professional  men  and 
small  traders  (as  was  done  after  every  previous  war) — whether  by 
customs  or  excise  duties,  by  industrial  monopolies,  by  unnecessarily 
high  rates  of  postage  and  railway  fares,  or  by  a  thousand  and  one 
other  ingenious  devices — an  unfair  share  of  the  national  burden. 
Against  these  efforts  the  Labor  party  will  take  the  firmest  stand. 

D.      THE   SURPLUS   WEALTH  FOR   THE   COMMON   GOOD 

In  the  disposal  of  the  surplus  above  the  standard  of  life,  society 
has  hitherto  gone  as  far  wrong  as  in  its  neglect  to  secure  the  necessary 
basis  of  any  genuine  industrial  efficiency  or  decent  social  order.  We 
have  allowed  the  riches  of  our  mines,  the  rental  value  of  the  lands 
superior  to  the  margin  of  cultivation,  the  extra  profits  of  the  fortunate 
capitalists,  even  the  material  outcome  of  scientific  discoveries — 
which  ought  by  now  to  have  made  this  Britain  of  ours  immune  from 
class  poverty  or  from  any  widespread  destitution — to  be  absorbed 
by  individual  proprietors;  and  then  devoted  very  largely  to  the 
senseless  luxury  of  an  idle  rich  class.  Against  this  misappropriation 
of  the  wealth  of  the  community,  the  Labor  party — speaking  in  the 
interests,  not  of  the  wage  earners  alone,  but  of  every  grade  and  section 
of  producers  by  hand  or  by  brain,  not  to  mention  also  those  of  the 
generations  that  are  to  succeed  us,  and  of  the  permanent  welfare  of  the 
community — emphatically  protests.  One  main  pillar  of  the  house 
that  the  Labor  party  intends  to  build  is  the  future  appropriation  of 
the  surplus,  not  to  the  enlargement  of  any  individual  fortune,  but  to 
the  common  good.  It  is  from  this  constantly  arising  surplus  (to  be 
secured,  on  the  one  hand,  by  nationalization  and  municipalization 
and,  on  the  other,  by  the  steeply  graduated  taxation  of -private 


AFTER-THE-WAR  PROBLEMS  663 

incomes  and  riches)  that  will  have  to  be  found  the  new  capital  which 
the  community  day  by  day  needs  for  the  perpetual  improvement  and 
increase  of  its  various  enterprises,  for  which  we  shall  decline  to  be 
dependent  on  the  usury-exacting  financiers.  It  is  from  the  same 
source  that  has  to  be  defrayed  the  public  provision  for  the  sick  and 
infirm  of  all  kinds  (including  that  for  maternity  and  infancy)  which 
is  still  so  scandously  insufficient;  for  the  aged  and  those  prematurely 
incapacitated  by  accident  or  disease,  now  in  many  ways  so  imperfectly 
cared  for;  for  the  education  alike  of  children,  of  adolescents  and  of 
adults,  in  which  the  Labor  party  demands  a  genuine  equality  of 
opportunity,  overcoming  all  differences  of  material  circumstances; 
and  for  the  organization  of  public  improvements  of  all  kinds,  includ- 
ing the  brightening  of  the  lives  of  those  now  condemned  to  almost 
ceaseless  toil,  and  a  grea,t  development  of  the  means  of  recreation. 
From  the  same  source  must  come  the  greatly  increased  public  pro- 
vision that  the  Labor  party  will  insist  on  being  made  for  scientific 
investigation  and  original  research,  in  every  branch  of  knowledge,  not 
to  say  also  for  the  promotion  of  music,  literature,  and  fine  art,  which 
have  been  under  capitalism  so  greatly  neglected,  and  upon  which,  so 
the  Labor  party  holds,  any  real  development  of  civilization  funda- 
mentally depends.  Society,  like  the  individual,  does  not  live  by 
bread  alone — does  not  exist  only  for  perpetual  wealth  production. 
It  is  in  the  proposal  for  this  appropriation  of  every  surplus  for  the 
common  good — in  the  vision  of  its  resolute  use  for  the  building  up  of 
the  community  as  a  whole  instead  of  for  the  magnification  of  indi- 
vidual fortunes — that  the  Labor  party,  as  the  party  of  the  pro- 
ducers by  hand  or  by  brain,  most  distinctively  marks  itself  off  from 
the  older  political  parties,  standing,  as  these  do,  essentially  for  the 
maintenance,  unimpaired,  of  the  perpetual  private  mortgage  upon 
the  annual  product  of  the  nation  that  is  involved  in  the  individual 
ownership  of  land  and  capital. 

THE   STREET   OF   TOMORROW 

The  house  which  the  Labor  party  intends  to  build,  the  four 
pillars  of  which  have  now  been  described,  does  not  stand  alone  in  the 
world.  Where  will  it  be  in  the  street  of  tomorrow  ?  If  we  repudiate 
on  the  one  hand  the  imperialism  that  seeks  to  dominate  other 
races,  or  to  impose  our  own  will  on  other  parts  of  the  British  empire, 
so  we  disclaim  equally  any  conception  of  a  selfish  and  insular 
"  non-interventionism,"  unregarding  of  our  special  obligations  to  our 


664  ECONOMICS  OF  WAR 

fellow-citizens  overseas;  of  the  corporate  duties  of  one  nation  to 
another;  of  the  moral  claims  upon  us  of  the  non-adult  races,  and  of 
our  own  indebtedness  to  the  world  of  which  we  are  part.  We  look 
for  an  ever-increasing  intercourse,  a  constantly  developing  exchange 
of  commodities,  a  continually  expanding  friendly  co-operation  among 
all  the  peoples  of  the  world.  With  regard  to  that  great  common- 
wealth of  all  races,  all  colors,  all  religions,  and  all  degrees  of  civiliza- 
tion that  we  call  the  British  Empire,  the  Labor  party  stands  for 
its  maintenance  and  its  progressive  development  on  the  lines  of  local 
autonomy  and  "Home  Rule  All  Round";  the  fullest  respect  for  the 
rights  of  each  people,  whatever  its  color,  to  all  the  democratic  self- 
government  of  which  it  is  capable  and  to  the  proceeds  of  its  own 
toil  upon  the  resources  of  its  own  territorial  home;  and  the  closest 
possible  co-operation  among  all  the  various  members  of  what  has 
become  essentially,  not  an  empire  in  the  old  sense,  but  a  Britannic 
alliance. 

We  desire  to  maintain  the  most  intimate  relations  with  the  Labor 
parties  overseas.  Like  them,  we  have  no  sympathy  with  the  projects 
of  "Imperial  Federation,"  in  so  far  as  these  imply  the  subjection  to  a 
common  imperial  legislature  wielding  coercive  power  (including 
dangerous  facilities  for  coercive  imperial  taxation  and  for  enforced 
military  service),  either  of  the  existing  self-governing  Dominions, 
whose  autonomy  would  be  thereby  invaded;  or  of  the  United  King- 
dom, whose  freedom  of  democratic  self -development  would  thereby  be 
hampered;  or  of  India  and  the  colonial  dependencies,  which  would 
thereby  run  the  risk  of  being  further  exploited  for  the  benefit  of  a 
"  White  Empire."  We  do  not  intend,  by  any  such  "  Imperial  Senate," 
either  to  bring  the  plutocracy  of  Canada  and  South  Africa  to  the  aid 
of  the  British  aristocracy  or  to  enable  the  landlords  and  financiers  of 
the  mother-country  to  unite  in  controlling  the  growing  popular 
democracies  overseas.  The  autonomy  of  each  self-governing  part  of 
the  empire  must  be  intact. 

What  we  look  for,  besides  a  constant  progress  in  democratic 
self-government  of  every  part  of  the  Britannic  alliance,  and  especially 
in  India,  is  a  continuous  participation  of  the  ministers  of  the  Domin- 
ions, of  India,  and  eventually  of  other  dependencies  (perhaps  by 
means  of  their  own  ministers  specially  resident  in  London  for  this 
purpose)  in  the  most  confidential  deliberations  of  the  Cabinet,  so 
far  as  foreign  policy  and  imperial  affairs  are  concerned;  and  the  annual 
assembly  of  an  Imperial  Council,  representing  all  constituents  of  the 


AFTER-THE-WAR  PROBLEMS  665 

Britannic  alliance,  and  all  parties  in  their  local  legislatures,  which 
should  discuss  all  matters  of  common  interest,  but  only  in  order  to 
make  recommendations  for  the  simultaneous  consideration  of  the 
various  autonomous  l«cal  legislatures  of  what  should  increasingly 
take  the  constitutional  form  of  an  alliance  of  free  nations.  And 
we  carry  the  idea  farther.  As  regards  our  relations  to  foreign  coun- 
tries, we  disavow  and  disclaim  any  desire  or  intention  to  dispossess 
or  to  impoverish  any  other  state  or  nation.  We  seek  no  increase 
of  territory.  We  disclaim  all  idea  of  "economic  war."  We  ourselves 
object  to  all  protective  customs  tariffs;  but  we  hold  that  each  nation 
must  be  left  free  to  do  what  it  thinks  best  for  its  own  economic 
development  without  thought  of  injuring  others.  We  believe  that 
nations  are  in  no  way  damaged  by  each  other's  economic  prosperity 
or  commercial  progress;  but,  on  the  contrary,  that  they  are  actually 
themselves  mutually  enriched  thereby.  "We  would  therefore  put  an 
end  to  the  old  entanglements  and  mystifications  of  secret  diplomacy 
and  the  formation  of  leagues  against  leagues.  We  stand  for  the 
immediate  establishment,  actually  as  a  part  of  the  treaty  of  peace 
with  which  the  present  war  will  end,  of  a  universal  league  or  society 
of  nations,  a  supernational  authority,  with  an  international  high 
court  to  try  all  justiciable  issues  between  nations,  an  international 
legislature  to  enact  such  common  laws  as  can  be  mutually  agreed 
upon,  and  an  international  council  of  mediation  to  endeavor  to  settle 
without  ultimate  conflict  even  those  disputes  which  are  not  justiciable. 
We  would  have  all  the  nations  of  the  world  most  solemnly  undertake 
and  promise  to  make  common  cause  against  any  one  of  them  that 
broke  away  from  this  fundamental  agreement.  The  world  has 
suffered  too  much  from  war  for  the  Labor  party  to  have  any  other 
policy  than  that  of  lasting  peace. 

MORE   LfGHT — BUT  ALSO   MORE   WARMTH! 

The  Labor  party  is  far  from  assuming  that  it  possesses  a  key  to 
open  all  locks,  or  that  any  policy  which  it  can  formulate  will  solve  all 
the  problems  that  beset  us.  But  we  deem  it  important  to  ourselves 
as  well  as  to  those  who  may,  on  the  one  hand,  wish  to  join  the  party, 
or,  on  the  other,  to  take  up  arms  against  it,  to  make  quite  clear  and 
definite  our  aim  and  purpose.  The  Labor  party  wants  that  aim  and 
purpose,  as  set  forth  in  the  preceding  pages,  with  all  its  might.  It 
calls  for  more  warmth  in  politics,  for  much  less  apathetic  acquiesc  nee 
in  the  miseries  that  exist,  for  none  of  the  cynicism  that  saps  the  life 


666  ECONOMICS  OF  WAR 

of  leisure.  On  the  other  hand,  the  Labor  party  has  no  belief  in  any 
of  the  problems  of  the  world  being  solved  by  good  will  alone.  Good 
will  without  knowledge  is  warmth  without  light.  Especially  in  all 
the  complexities  of  politics,  in  the  still  undeveloped  science  of  society, 
the  Labor  party  stands  for  increased  study,  for  the  scientific  investiga- 
tion of  each  succeeding  problem,  for  the  deliberate  organization  of 
research,  and  for  a  much  more  rapid  dissemination  among  the  whole 
people  of  all  the  science  that  exists.  And  it  is  perhaps  specially  the 
Labor  party  that  has  the  duty  of  placing  this  advancement  of  science 
in  the  forefront  of  its  political  program.  What  the  Labor  party 
stands  for  in  all  fields  of  life  is,  essentially,  democratic  co-operation; 
and  co-operation  involves  a  common  purpose  which  can  be  agreed  to, 
a  common  plan  which  can  be  explained  and  discussed,  and  such  a 
measure  of  success  in  the  adaptation  of  means  to  ends  as  will  insure  a 
common  satisfaction.  An  autocratic  sultan  may  govern  without 
science  if  his  whim  is  law.  A  plutocratic  party  may  choose  to  ignore 
science  if  it  is  heedless  whether  its  pretended  solutions  of  social 
problems  that  may  win  political  triumphs  ultimately  succeed  or  fail. 
But  no  Labor  party  can  hope  to  maintain  its  position  unless  its 
proposals  are,  in  fact,  the  outcome  of  the  best  political  science  of  its 
time,  or  to  fulfil  its  purpose  unless  that  science  is  continually  wresting 
new  fields  from  human  ignorance.  Hence,  although  the  purpose  of 
the  Labor  party  must,  by  the  law  of  its  being,  remain  for  all  time 
unchanged,  its  policy  and  its  program  will,  we  hope,  undergo  a  per- 
petual development,  as  knowledge  grows,  and  as  new  phases  of  the 
social  problem  present  themselves,  in  a  continually  finer  adjustment 
of  our  measures  to  our  ends.  If  law  is  the  mother  of  freedom,  science, 
to  the  Labor  party,  must  be  the  parent  of  law. 

3.    PROGRAM  OF  THE  WORLD'S  PEACE1 

It  will  be  our  wish  and  purpose  that  the  processes  of  peace  when 
they  are  begun  shall  be  absolutely  open,  and  that  they  shall  involve 
and  permit  henceforth  no  secret  understandings  of  any  kind.  The  day 
of  conquest  and  aggrandizement  is  gone  by;  so  is  also  the  day  of 
secret  covenants  entered  into  in  the  interest  of  particular  govern- 
ments, and  likely  at  some  unlooked-for  moment  to  upset  the  peace  of 
the  world.  It  is  this  happy  fact,  now  clear  to  the  view  of  every  public 
man  whose  thoughts  do  not  still  linger  in  an  age  that  is  dead  and  gone, 
which  makes  it  possible  for  every  nation  whose  purposes  are  consistent 

1  By  Woodrow  Wilson.     From  address  to  Congress,  January  8,  1918. 


AFTER-THE-WAR  PROBLEMS  667 

with  justice  and  the  peace  of  the  world  to  avow  now  or  at  any  other 
time  the  objects  it  has  in  view. 

The  program  of  the  world's  peace  is  our  program;    and  that 
program,  the  only  possible  program,  as  we  see  it,  is  this: 

I.  Open  covenants  of  peace,  openly  arrived  at;  after  which  there 
shall  be  no  private  international  understandings  of  any  kind,  but 
diplomacy  shall  proceed  always  frankly  and  in  the  public  view. 

II.  Absolute  freedom  of  navigation  upon  the  seas,  outside  terri- 
torial waters,  alike  in  peace  and  in  war,  except  as  the  seas  may  be 
closed  in  whole  or  in  part  by  international  action  for  the  enforcement 
of  international  covenants. 

III.  The  removal,  so  far  as  possible,  of  all  economic  barriers  and 
the  establishment  of  an  equality  of  trade  conditions  among  all  the 
nations  consenting  to  the  peace  and  associating  themselves  for  its 
maintenance. 

IV.  Adequate  guarantees  given  and  taken  that  national  arma- 
ments will  be  reduced  to  the  lowest  point  consistent  with  domestic 
safety. 

V.  A  free,  open-minded,  and  absolutely  impartial  adjustment 
of  all  colonial  claims,  based  upon  a  strict  observance  of  the  principle 
that  in  determining  all  such  questions  of  sovereignty  the  interests  of 
the  populations  concerned  must  have  equal  weight  with  the  equitable 
claims  of  the  government  whose  title  is  to  be  determined. 

VI.  The  evacuation  of  all  Russian  territory,  and  such  a  settle- 
ment of  all  questions  affecting  Russia  as  will  secure  the  best  and 
freest  co-operation  of  the  other  nations  of  the  world  in  obtaining  for 
her  an  unhampered  and  unembarrassed  opportunity  for  the  inde- 
pendent determination  of  her  own  political  development  and  national 
policy,  and  assure  her  of  a  sincere  welcome  into  the  society  of  free 
nations  under  institutions  of  her  own  choosing;    and,  more  than  a. 
welcome,  assistance  also  of  every  kind  that  she  may  need  and  may 
herself  desire.     The  treatment  accorded  Russia  by  her  sister  nations 
in  the  months  to  come  will  be  the  acid  test  of  their  good  will,  of  their 
comprehension  of  her  needs  as  distinguished  from  their  own  interests, 
and  of  their  intelligent  and  unselfish  sympathy. 

VII.  Belgium,  the  whole  world  will  agree,  must  be  evacuated  and 
restored  without  any  attempt  to  limit  the  sovereignty  which  she 
enjoys  in  common  with  all  other  free  nations.     No  other  single  act 
will  serve  as  this  will  serve  to  restore  confidence  among  the  nations 
in  the  laws  which  they  have  themselves  set  and  determined  for  the 


668  ECONOMICS  OF  WAR 

government  of  their  relations  with  one  another.  Without  this  healing 
act  the  whole  structure  and  validity  of  international  law  is  forever 
impaired. 

VIII.  All  French  territory  should  be  freed  and  the  invaded 
portions  restored;  and  the  wrong  done  to  France  by  Prussia  in  1871 
in  the  matter  of  Alsace-Lorraine,  which  has  unsettled  the  peace  of 
the  world  for  nearly  fifty  years,  should  be  righted,  in  order  that  peace 
may  once  more  be  made  secure  in  the  interest  of  all. 

IX.  A  readjustment  of  the  frontiers  of  Italy  should  be  effected 
along  clearly  recognizable  lines  of  nationality. 

X.  The  peoples  of  Austria-Hungary,  whose  place  among  the 
nations  we  wish  to  see  safeguarded  and  assured,  should  be  accorded 
the  freest  opportunity  of  autonomous  development. 

XI.  Roumania,  Serbia,  and  Montenegro  should  be  evacuated; 
occupied  territories  restored;   Serbia  accorded  free  and  secure  access 
to  the  sea;   and  the  relations  of  the  several  Balkan  States  to  one 
another  determined  by  friendly  counsel  along  historically  established 
lines  of  allegiance  and  nationality;   and  international  guaranties  of 
the  political  and  economic  independence  and  territorial  integrity  of 
the  several  Balkan  States  should  be  entered  into. 

XII.  The  Turkish  portions  of  the  present  Ottoman  Empire  should 
be  assured  a  secure  sovereignty,  but  the  other  nationalities  which 
are  now  under  Turkish  rule  should  be  assured  an  undoubted  security 
of  life  and  an  absolutely  unmolested  opportunity  of  autonomous 
development,  and  the  Dardanelles  should  be  permanently  opened  as 
a  free  passage  to  the  ships  and  commerce  of  all  nations  under  inter- 
national guaranties. 

XIII.  An  independent  Polish  State  should  be  erected  which  should 
include  the  territories  inhabited  by  indisputably  Polish  populations, 
which  should  be  assured  a  free  and  secure  access  to  the  sea,  and 
whose  political  and  economic  independence  and  territorial  integrity 
should  be  guaranteed  by  international  covenant. 

XIV.  A  general  association  of  nations  must  be  formed,  under 
specific  covenants,  for  the  purpose  of  affording  mutual  guaranties  of 
political  independence  and  territorial  integrity  to  great  and  small 
states  alike. 


INDEXES 


INDEX  TO  AUTHORS 


[References  are  to  pages] 


Adams,  Henry  C.,  422 

Anderson,  B.  M.,  Jr.,  461 

Andrews,  John  B.,  521 

Angell,  Norman,  i,  2,  9,  12,  58,  61,  82 

"Atticus,"  593 

Ayres,  C.  E.,  99 

Barnes,  G.  N.,  512 
Bergland,  Abraham,  262 
von  Bernhardi,  F.,  3,  22 
Blanchard,  Raoul,  188 
Blanchon,  Georges,  112,  116 
Bogart,  Ernest  L.,  542 
Brailsford,  H.  N.,  57,  87 
Brand,  R.  H.,  191,  259,  384 
Bullock,  Charles  J.,  396 
Burgess,  George  K.,  107 

Carver,  Thomas  Nixon,  432 
Cassel,  Gustav,  160 
Chevrillon,  Andre,  182,  183,  209 
Clark,  J.  M.,  566 
Coffin,  Howard  Earle,  103,  166 
Cole,  G.  D.  H.,  484 
Cromer,  The  Earl  of,  52 
Crowder,  General,  184 

Delano,  F.  A.,  404 
Dernburg,  Herr,  597 
Desmond,  Thomas  C.,  510 
Destree,  Jules,  276 
Dickinson,  Thomas  H.,  462 
Donald,  Robert,  272 
Dreher,  William  C.,  545 
Durand,  E.  Dana,  388,  393 

Editorials,  120,  131,  155,  175,  216,  255, 

296,  347,  355,  365,  370,  37i,  385, 
401,  424,  441,  453,  468,  547,  556, 600, 
620 


Field,  James  A.,  555 
Finlay,  James  R.,  118 


Fischer,  K.  A.,  67 
Frankfurter,  Felix,  530 
Frenderburg,    Prince   du    Loewenstein 
Wertheim,  589 

Gilbert,  Chester  G.,  337 
Gottlieb,  Louis,  382 
Groner,  General,  199 

Hamilton,  Walton  H.,  311 
Hard,  William,  224 
Harper,  Samuel,  202 
Hauser,  Henri,  26 
Helfferich,  Karl,  28,  142,  145 
Herve,  Gustave,  481 
Hirst,  F.  W.,  548 
Hitchcock,  Curtice  N.,  245 
Hobson,  J.  A.,  552,  562 

Johnson,  Alvin,  i,  43,  47,  185 

Kennedy,  Sinclair,  427 
Konovalov,  A.  I.,  206 
Krai,  J.  J.,  258 

Leiserson,  William  M.,  506 
Lippman,  Walter,  54,  85 
List,  Friedrich,  i,  2,  4 
Littlefield,  Walter,  150 
Lloyd  George,  David,  368,  613 
Lund,  Fin,  256 
Lvov,  Prince,  206 

McAdoo,  William  G.,  354 
McElvare,  R.  R.,  382 
McKenzie,  F.  A.,  345 
McRoberts,  Samuel.  292 
Marshall,  L.  C.,  180,  221,  228 
Means,  David  McGregor,  45*7 
Middleton,  P.  Harvey,  601 
Miller,  A.  C.,  407 
Montagu,  Edwin,  104,  106 
Moore,  James  Louis,  285 
Morrow,  Dwight  W.,  433 


671 


672 


ECONOMICS  OF  WAR 


Moulton,  Harold  G.,  168,  177,  186,  300, 
448,  455 

Nitti,  Francesco  Saverio,  498 
Notz,  William,  323,  334 

Orth,  Samuel  P.,  152 
Otis,  Roland,  510 

Parfit,  Canon,  3,  39 
Park,  William  L.,  149 
Pelletier,  E.  LeRoy,  428 
Pogue,  Joseph  E.,  337 

Rathenau,  Walter,  197 
Ravenstone,  Piercy,  154 
Reynolds,  George  M.,  387 
Roberts,  Lord,  595 
Rochester,  Anna,  524 
Ross,  Edward  Alsworth,  14 
Rossiter,  William,  17 
Rovehsky,  John  E.,  270,  271 

Schmoller,  Gustav,  i,  2,  6 
Selfridge,  Harry  Gordon,  430 


Seligman,  Edwin  R.  A.,  409,  541 

Smith,  Adam,  93,  95 

Snow,  Chauncey  Depew,  258 

Sprague,  O.  M.  W.,  392 

Stocks,  Mary,  639 

Sullivan,  Mark,  500 

Tead,  Ordway,  619 
Thelen,  Max,  348 
Thomas,  James  H.,  497 
Thompson,  Warren  S.,  20 

Usher,  Abbot  Payson,  34 

Vanderlip,  Frank  A.,  172 
Van  Hise,  Charles  R.,  445,^69 
Van  Metre,  T.  W.,  363 
Veblen,  Thorstein,  157 

Webb,  Sidney,  451,  514 
Wilson,  William  B.,  491 
Wilson,  Woodrow,  288,  508,  666 

Young,  George,  41 


SUBJECT  INDEX 


[The  references  are  to  pages.] 


Adams,  Henry  C.,  391 

Advertising,  581 

Aeroplanes,  103,  175 

After-the-war  problems,  chap,  xvi 

Agriculture,  96 

Alliances,  5 

Allied  economic  agreement,  the  need  of, 

606 

Allied  Purchasing  Commission,  296 
American     Alliance     for     Labor    and 

Democracy,  494,  495,  496,  497 
American  labor,  war  attitude  of,  p.  491 
Armament  interests,  48 
Association  of  nations,  596 

Bagdad  railway,  38,  39,  40,  41 

Balance  of  trade,  7,  261,  262 

Balkan  wars,  3 

Bank  credit  and  war  finance,  386 

Baruch,  Bernard  M.,  249 

Blockade  of  Germany,  128,  129,  i6f 

Bonds  versus  taxes,  392 

British  labor,  war  attitude  of,  484,  646 

British  trade  unionists,  war  attitude  of, 

488 
Business  as  usual,  427,  428,  430,  431, 

501,  503,  504,  581 

Capital,  effects  of  war  upon,  553 

Capital  goods,  effects  of  war  upon,  541, 
549 

Capital  issues,  298 

Capital  Issues  Committee,  298 

Car  shortage,  358 

Cartel,  603,  604 

Children  in  industry,  499,  524,  525,  526, 
527,  528,  529,  530 

Coal  and  electricity,  305,  340 

Coal:  European  deposits,  p.  135;  of 
Westphalia,  31;  price  control  of, 
471;  prices,  327, 458;  problem  of  the 
Allies,  277;  problems  of  the  United 
States,  305,  330,  458;  production  and 


resources,  136;  production  of  the 
world,  324;  resources  of  Germany, 
142. 

Coal  Mines  Act,  649 

Colonial  aims  of  Germany,  612 

Colonial  booty,  68 

Colonial  policy,  26,  37;  French  Social- 
ist view  of,  616 

Colonial  problems,  35 

Colonial  trader,  49 

Commercial  rivalry,  2,  13,  43 

Competitive  production,  571 

Compulsory  civilian  service,  198 

Concessionary  investors,  47 

Concessions,  41,  56 

Congestion  of  traffic,  359 

Conscription  of  capital,  382 

Conscription  of  income,  392 

Consumer,  the,  101 

Contracts:  forms  of,  474,  475,  476,  477; 
cost-plus-lump-sum,  477;  cost-plus- 
percentage,  180,  478;  economy- 
sharing,  477. 

Co-operation  between  nations,  1 2 
Co-ordination  further  required,  253 
Co-ordination,  the  need  for,  224 
Copper  production,  139 
Corporation    for    the    Promotion    of 

German  Foreign  Trade,  602 
Cost  of  war  in  men,  544 
Cost-plus-lump-sum  contracts,  477 
Cost-plus-percentage  contracts,  180, 478 
Costs   of   war,    chap,    xiii,    541,    556; 

pecuniary,  542;  social,  548,  557,  558, 

559 

Cotton,  30 

Council  of  National  Defense,  231 
Credit  inflation,  272 
Currency,  effect  of  war  upon,  549 

Demobilization,  627,  634,  635,  636,  637 
Director-General  McAdoo,  347,  351 


674 


ECONOMICS  OF  WAR 


Discipline,  German,  152 
Diversion  of  energy,  124,  134,  175 
"Dumping,"  44,  591 

Economic:  amateurs,  221;  background 
of  war,  chap,  i;  imperialism,  2,  22; 
independence,  608,  609;  inequality, 
580;  interdependence,  13;  isolation 
of  Germany,  160;  organization  and 
war,  99;  resources,  chap,  iv;  rivalry, 
2,  37;  strategy,  94,  120;  unity, 
national,  6 

Economy,  national,  573 

Efficiency,  competitive,  583 

Efficiency,  principles  of  national,  chap, 
xiv,  566,  567,  568,  569 

Electrical  power  in  Germany,  147 

Electricity,  use  of,  656 

Emergency  Fleet  Corporation,  229, 
252,  296,  343 

Emigration,  29 

Employment:  after  the  war,  650; 
exchanges,  181;  service  of  the 
United  States,  508 

Enemy  Trading  Act,  267 

Excess  profits  taxation,  414,  424 

Exploitation,  systematic,  69 

Exploitative:  business,  52;  capital,  52; 
trade,  46 

Exports,  288 

Express  companies,  360 

Farrell,  James  A.,  596 

Federal  Bureau  of  Standards,  578 

Federal  Trade  Commission,  325 

Feed  prices,  467 

Finance,  chap,  x 

Financial  interests,  56,  87 

Food, 34 

Food:    Administration,  252,   296,  379, 

462,  464;    and  fuel,  chap,  viii;   card 

system,     307;      control     law,     463; 

excursionists,  306;  supply,  14 
Foreign  exchange,  254,  259;  control  of, 

268 

Foreign  Trade,  of  Germany,  258,  267 
Free  trade,  53,  54 

Fuel  Administration,  252,  296,  300,  379 
Fuel  and  food,  chap,  viii 

Gains     from     war:      economic,     562; 

industrial,  561 
Geographic  position,  value  of,  127 


Gold  supply,  255,  270 
Great  illusion,  the,  58,  61 
Greenwood,  Arthur,  560 

Hague  conventions,  57,  66 
Heatless  "holidays,"  330 
Housing:    in  New  Orleans,   510,   511, 
512;  problem,  241;  the  need  of,  510 

Immigration,  16,  29;   and  man  power, 

505 

Imperialism,  55;   economic,  2,  22,  32 
Imperialistic  plans,  Great  Britain's,  605 
Imports,  restriction  of,  290 
Income  tax,  409,  421,  422 
Industrial  conscription,  177,  186 
Industrial     mobilization:      and     price 

control,  455;    in  England,  165,  191; 

in  France,   165,   188;    in   Germany; 

165,     197;    *in    Russia,     165,     202; 

obstacles  to  rapid,  chap,  vi 
Industrial:    penetration,  26.;    processes 

correlated,  148;   resources,  126,  135; 

state,  29;   unrest,  512,  513,  531,  532, 

534;  war  gains,  560 
Industrialization  of  Germany,  34 
Industry:   and  war,  94,  112,  118;   and 

world-policy,    31;     control   of,    654, 

658;  of  Europe,  37;  of  Germany,  31; 

penalty  of  taking  the  lead  in,  157 
Inflation,  403,  404,  407;  of  credit,  272 
Insurance  Act,  654 

Inter-Allied  Labor  and  Socialist  Con- 
ference, 614,  615 

Inter-Allied  Labor  Conference,  645 
Interdependence,  economic,  13,  254 
International:     co-operation,    12;     ex- 
change, 254,  259,  268;   relations,  34; 
rivalry,  9,  36;   trade,  601 
Intervention,  41 

Iron:  of  Briey,  31;  of  Germany,  31, 
142;  of  Lorraine,  31,  33;  of  Luxem- 
burg, 33;  of  Normandy,  31;  of  the 
Saar,  33;  of  Westphalia,  33;  pro- 
duction, 137;  resources,  138 

Labor,  644,  645;  administration  of, 
230;  and  the  war,  chap,  xii,  481,  514, 
515;  conditions,  521,  522,  523,  524; 
effects  of  war  upon,  554;  legislation, 
522,  649;  mobilization  of  American, 
497;  mobilization  of  British,  497; 
mobilization  of  French,  497;  mobili- 
zation of  Italian,  498;  policy  in  war- 
time, 535;  policy  of  Great  Britain, 
517 


SUBJECT  INDEX 


675 


Labor  market,  organization  of,  506, 621, 

622 

Labor  party,  war  attitude  of,  486,  489 
Laissez-faire,  theory  of,  154 
Liberty  Loan  campaigns,  217 
Lloyd  George,  277,  380,  521 
Loans,  chap,  x;    by  the  United  States, 

263 

Lorraine  iron,  31,  64 
Ludendorff,  General,  199 
Luxuries,  172 

McAdoo,  Director-General  W.  G.,  347, 

35i 

Machinery  and  war,  103 
Machtpolilik,  22,  33 
Man    power,    126;     and   immigration, 

505;    organization  of,  500;    shortage 

of,  503 

Markets,  23,  24,  33,  38,  44 
Mediation  in  war  time,  530 
Mercantile  marine,  5,  27 
Mercantilism,  7 

Mesopotamia,  2,  3,  38,  134;    a  British 

view  of,  39 
Minerals,  33,  76 
Ministry  of  Munitions,  104,  106,  195, 

236;  development  of,  276 
"Mittel-Europa,"  74,  77,  81 

Mobilization,  obstacles  to  rapid,  chap, 
vi 

Mobilization,  industrial,  chap,  v;  in 
England,  165,  191;  in  France,  165, 
188;  in  Germany,  165,  197;  in 
Russia,  165,  202 

Money,  function  of,  384 

Munitions:  Ministry  of,  104,  106,  195, 
236,  276;  insatiable  demand  for,  104 

Munitions  Act,  211 

National  minimum,  648 
National  War  Labor  Board,  535 
Nationalization,  656 
Naval  power,  5 
Near  East,  38,  41 
Nonessentials,  168,  171,  186,  217 
Non-ferrous  Metals  Act,  598 

"Open  Door,"  25,  26,  54 

Ordnance    Department,    problems    of, 

292 
Overman  Bill,  244 


Paris  Economic  Conference,  590,  591, 
595,  606,  607 

Peace,  economic  factors  in  an  enduring, 
chap,  xv 

.  Petroleum  production,  139 
Plant  conversion,  166,  251,  636,  638 
Population:    effects  of  war  upon,  555; 

limits,  17;  pressure  of,  2,  14,  17,  23, 

24,   25,   26,    28;    restriction  of,   21; 

stationary,  20 
Press,  position  of  the,  216 
Price  control,  chap,  xi,  448,  449;    in 

Great  Britain,  451;   of  coal,  471;   of 

copper,  469;   of  iron  and  steel,  470; 

of  meat  packing,  465;   of  wheat,  459 
Price-fixing,  195,    chap,  xi,  457,  493, 

494;  in  the  United  States,  461 
Price:   level,  271,  441,  624;   problems, 

248,  453 
Price  increase,  causes  and  effects  of, 

442,  445 

Prices  in  Petrograd,  450 
Priorities  Board,  227,  252,  296 
Priorities  in  fuel  and  transportation,  298 
Priority:    method,   185,   248;    system, 

296, 583 

Profits,  trade,  44 
Protectorates,  35 
Public  opinion,  organization  of,  208, 

209 

Railroad  administration,  252,  343 
Railroads,  chap,  ix 
Railroads  War  Board,  348 
Railways:    German  and  English,  158; 

Germany's  strategic,   149;    mileage, 

141;  military  use  of,  1 16 
Rathenau  plan,  69 
Raw  materials,   69,   136;    boycott  of, 

597>  598;    Germany's  need  of,  589; 

international    control   of,   600,   601; 

organization  of,  593,  599 
Reconstruction,    chap,    xvi;     English 

Ministry  of,  628,  629,  630,  631,  632; 

proposals  in  Great  Britain,  619 
Regional  organization  of  industry,  300 
Repington,  Charles  a  Court,  125 
Resources:   economic,  chap,  iv;   indus- 
trial, 126,  135;   of  "Mittel-Europa," 

74 
Rivalry:   commercial,  2,  43;   economic, 

2,   13,  37!    international,  9,  24,  36; 

trade,  10,  87 


676 


ECONOMICS  OF  WAR 


Salesmanship,  581 

Saving,  the  need  of,  563,  564,  565 

Science  and  industry,  27,  107 

Securities,  return  of  American,  263 

Selective  draft,  183 

Seligman,  Edwin  R.  A.,  391 

Sherman  Law,  363,  366 

Shipbuilding  strategy,  371 

Shipping,  124,  chap,  ix;   after  the  war, 

626;  improves,  266 
Shipping  Board,  343,  379 
Smith,  Adam,  551 
Social:    customs,  155;    insurance,  655; 

reform,  643 
Socialism,  30,  63 
Steam  power  in  Germany,  145 
Steel  production,  138;  of  Germany,  145 
Submarine  losses,  368,  376 
Submarines,  115,  124,  130 
Surplus  wealth,  662 

Tariff:  barriers,  7,  23;   union,  6;  walls, 

52;   wars,  24,  53 
Taxation,  chap,  x,  659,   660,  661;   of 

luxuries,  421,  425;  policy,  409,  624 
Territorial  problems,  608,  614 
Territory,  acquisition  of,  25 
Thrift  problem,  427 
Timber  lands  and  production,  140 
Trade:    balance,   7;    competition,   24; 

dislocations,  254,  255;    exploitative, 


46; 
144 


international,    44,    60;    profits, 


Trade  and  industry:   British  control  of, 
272,  war-time  regulation  of,  chap,  vii 
Transportation,  chap,  ix 

Unemployment,  effects  of  war  upon, 

55°,  652 
United  States  Shipping  Board,  269,  296 

Voluntary  compulsory  service,  213 

Wages,  increase  of,  443,  444,  446 
War  aims  of  Great  Britain,  613 
War  chest  at  Spandau,  380 
War  debts  of  Germany,  545,  547 
War  finance,   chap,   x;    War   Finance 

Corporation,  298,  381,  425,  427 
War  Industries  Board,  245,  296 
War  Trade  Board,  269;  291,  296,  379; 

policies  of,  286 
Weltpolitik,  31 
Westphalia,  iron  of,  33 
Wheat,  control  of  price  of,  459 
Women  in  industry,  156,  499,  524,  538, 

561,  623,  639,  640,  641 
Work  or  fight,  184 
Workmen's  Compensation  Act,  649 
World  policy  and  industry,  3 1 
World's  peace,  program  of,  667,  668 

Zollverein,  28 

Zoning  system  for  coaj,  334 


5o 


761  254    2 


